Disappointments have outnumbered surprises by a wide margin in the June quarter earnings season with most heavyweights reporting numbers below the already lowered estimates, says HDFC Securities.
The earnings reported by the Indian companies for the first quarter of the financial year 2017-18, has been way below expectations. HDFC Securities attributes the weak performance to GST-related de-stocking in several consumer-oriented sectors. According to the the firm’s latest report, Pre-GST destocking had an impact on most manufacturers of consumer goods and durables.
Further, the report says that rising raw material costs have also pressured margins, and most firms reported muted sales figures for the quarter. HDFC Securities noted that disappointments have outnumbered surprises by a wide margin in the June quarter earnings season with most heavyweights reporting numbers below the already lowered estimates.
Analysing the reasons for the poor performance, the report says that subdued domestic growth, an appreciating rupee (average INR vs. US$ appreciated a meaningful 3.6% over the quarter) and the GST rollout hiccup hurt India Inc’s performance. Pointing out to the performance in various sectors, the report says that Financials, Energy and Consumer Discretionary reported the best positive surprises; while Health Care, Consumer Staples and Industrials saw the biggest disappointments.
In its report, HDFC Securities analysed a sample of 2,108 companies over the last quarter (Apr-Jun) 2017 and concluded that the it’s a bleak picture overall with net sales showing slower growth and net profits growth showing deterioration. As per the report, private sector wage bill is now growing at mere 6% (vs 13-16% a year ago). The research and brokerage firm notes that while the market share from unorganised sector is increasing, many consumer facing companies saw a slowdown in growth. While this augurs well for corporate profitability, it could weigh on domestic consumption, says the report.
Investment by foreign investors in the Indian equity markets sharply declined to USD 2.12 billion in the quarter ended June 30 from USD 6 billion in the preceding three months on global and domestic concerns. In conclusion HDFC Securities said, “We expect GST related volatility to continue even in Q2FY18 before the low base of demonetization in H2FY17 comes to the rescue.”