Expectations from corporate India remain tempered as yet another earnings season gets under way, reports fe Bureau in Mumbai. Kotak Institutional Equities estimates Sensex earnings for the three months to December will grow at an anaemic 1.5% year-on-year with the aggregate topline falling 2.2%. Indeed, if one were to exclude oil marketing companies which will turn in good numbers, aggregate earnings could actually fall by about 2%. In fact, Bloomberg consensus estimates say Sensex earnings for Q3FY16 are set to drop 5%.
To be sure, much of the damage to to the top line will be the result of the collapse in commodity prices. However, it is also true that demand both for consumer goods and capital goods remains very weak. To begin with, there’s barely any increase in rural incomes which is keeping consumption spends on a leash. Moreover, investments spends are sluggish, especially in the private sector, which is why order books of engineering companies are not exactly overflowing. CMIE data showed the quantum of new investment proposals in Q3FY16 was just about a fourth of that last year. As always management commentary from the likes of a Larsen& Toubro (L&T) will be listened to carefully.
Those companies that are able to rein in costs can hope to maintain or improve operating margins but the base effect from the lower cost of inputs will wane in a couple of quarters if not earlier.
The festive season would definitely have contributed to better automobile sales but consumers are spening more on small-ticket items rather than say, on houses which would have, in turn created demand for a whole host of products. So it’s unlikely numbers from cement or construction companies will bring any cheer. The weak overseas demand will impact exporters; those with markets in China, for instance Tata Motors, could see profits under pressure. Steel producers will likely report losses given realisations have dropped sharply and imports not having slowed significantly. And there will be the fallout of the Chennai floods and furloughs. Banks might see some pressure on their margins since most lenders lowered base rates by about 25-35 basis points in October, except for those that managed to lower deposit rates. Slippages, at state-owned banks are expected to persist.