Given the consolidation seen in the markets over the last one month, an increasing number of experts see the upcoming earnings season as an important catalyst. While analysts expect the second quarter of FY15 to give a further boost to FY16 earnings upgrades, for the quarter itself, India Inc?s performance might be subdued.
With a stable rupee seen as impacting the performance of companies, the y-o-y recovery in operating and net profit is expected to stay on track. For the three months to September 2014, the average value of rupee stood at 60.6/$ against 62.1 in the year-ago period.
According to Edelweiss Securities, the fall in rupee, coupled with global demand, has aided the profits of India Inc since Q2FY14, with headline earnings registering a near double-digit growth. However, while domestic demand has improved, it?s still fragile and inadequate to compensate for lower growth in export earnings.
Among export-oriented sectors, analysts expect IT services to deliver stellar earnings in a seasonally strong September quarter despite adverse cross-currency movement on the back of a strengthening US dollar. While TCS is again expected to outdo its peers in sequential dollar-revenue growth, experts keenly await an indication from Infosys on the strategic path it aims to take under its new CEO.
A rising rupee is seen weighing on revenue growth of pharma companies, but a lower base for domestic operations and high-value launches in the US are likely to result in strong Ebitda growth.
Tata Motors ? which has spearheaded the recovery in Sensex companies? earnings growth over the last few quarters due to the strong performance of its JLR unit ? could also see a sequential improvement in margins in the CV business.
While a recovery in the demand environment is expected to support the numbers of most players, analysts largely see smaller players like Eicher Motors and Bharat Forge continuing to report strong earnings.
Even though the domestic demand is expected to recover, analyst still expect consumer companies to maintain moderate volume growth and lower gross margins. As per Ambit Capital, which maintains a tepid earnings outlook on the space, a consumer sentiment-related demand revival could be expected in the second half of FY15, with disposable household income likely to grow only from FY16 onwards.
Among heavyweights, ONGC is seen weighing on the overall Sensex earnings due to lower crude realisations and production volumes. A 6% decline in average price of Brent, lack of clarity on subsidy sharing and subdued refining margins are seen weighing on the financial of oil marketing companies.
Kotak Institutional Equities estimates that OMCs could report losses on the back of expected net under-recoveries of Rs 4,300 crore. While majors like ICICI Bank, HDFC Bank and SBI are expected to emerge as biggest contributors to Sensex earnings, overall, analysts see the Q2 performance of the banking space to be muted. They expect a strong treasury income to support pre-provision operating profit of banks even as they see weaker asset quality trends persisting.