It can?t get worse than this. Indian industry remains hesitant to add capacity and, as a result, new project announcements continue to slip. In the three months to March 2012, they dropped off a steep 28% y-o-y to R2,48,400 crore. And that?s a five-year low. Also, the environment is evidently not an easy one to work in because the number of projects stalled, for one reason or another, has risen to a multi-year high at R7,57,800 crore. As a share of total projects, too, the number is at its highest ever. But there?s a glimmer of hope and the private sector has, it would seem, been kicking off some projects as reflected in the sharp 60% q-o-q rise in new private project announcements. This is the second consecutive quarter that?s seen the private sector announcing more project starts?the December 2011 quarter had seen a strong 39% jump.
In the three months to September, gross fixed capital formation, at -0.6%, contracted for the first time since 2008-09 to R4.02 lakh crore. Not all of this will be reflected in the corporate earnings for the March 2012 quarter. Earnings for the Sensex set of companies are expected to grow at just 4% y-o-y after adjusting for State Bank of India?s numbers, which were extremely poor in the corresponding quarter of 2011. Otherwise, the rise is estimated at 10.4%y-o-y from 5% y-o-y in the December quarter and a shade better than the 9.4% y-o-y for the nine months to December.
At a broader level, revenues are expected to moderate, partially because of lower volumes, to around 15% for a broad swathe of companies compared to around 20% y-o-y reported in the December quarter. And given the slower increase in the topline, operating margins could contract by about 150 basis points since raw material pressures persist, especially for products that are derivatives of crude oil.
That is hardly reassuring, but then companies like Tata Steel, which now have an overwhelming overseas presence, can do little when the economic conditions in Europe are so grim. Back home, enineering majors like Larsen and Toubro have been struggling to get orders and complete them given the slowing economy. So, the big worry will continue to be the capital goods sector; if the order flows improve, it would be a hint that the investment cycle may be far from turning. In the December quarter, consolidated orders at Thermax were sharply lower by 40% y-o-y, at Siemens they fell 29% y-o-y. L&T?s inflows were up a good 27% y-o-y after a 11% fall in orders in the six months to September. But net inflows at Bhel were a negative R1,900 crore and that meant orders for the nine months to December fell 60% y-o-y. Indeed, Bhel couldn?t bag a single order from the power space while at L&T, orders dipped to R10,400 for the nine months to December, 2011. This time around, too, L&T could disappoint the Street. Meanwhile, Jindal Steel may once again turn in a?poor show thanks to the shortage of key resources, as may heavyweight Reliance Industries (RIL), where the production of gas at its trophy KG-D6 basin is understood to have fallen. The other disppointment this earnings season could be the consumption pack, which held up reasonably well last time. While rural incomes remain robust? purchasing power in urban India has reduced because of very high inflation. At companies like Asian Paints, for example, volumes had fallen sharply in the last few quarters. The broad data suggests that private final consumption expenditure may grow at just 6.4%?in 2011-2 compared with 8% plus in 2010-11.
In all this, the banking sector is expected to put up a fairly good show in terms of headline numbers, although loan growth may moderate and the higher cost of deposits would tell on the net interest margins at a time when bankers have been hard pressed to increase the yields on assets. What the Street will be waiting to see is the extent of slippages and loans restructured; already, non-performing assets and restructured loans account for more than 6% of assets, a number which could go up with more companies wanting their debt restructured. All in all, it?s going to be another dull earnings season. Now for that rate cut!
shobhana.subramanian@expressindia.com
