Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
10,741.35-177.35
Stock Analysis, IPO, Mutual Funds, Bonds & More

What earnings rebound? Some top blue chip firms talking of recession

FMCG is not alone. Auto, NBFCs and even IT firms have sounded caution.

, ETMarkets.com|
Updated: May 10, 2019, 12.39 PM IST
0Comments
Getty Images
Earnings-1---Getty
India Inc’s March quarter number so far have given investors no big reason to cheer about; in fact management commentaries have turned more cautious than before.
NEW DELHI: Hopes of an earnings rebound are being dashed again and how!

India Inc’s March quarter number so far have given investors no big reason to cheer about; in fact management commentaries have turned more cautious than before. At least one blue chip firm used the word ‘recession’ in management commentary.

This is especially true of the consumer-focussed sectors. This has made analysts wonder if ‘optically higher’ numbers for banks (on a low base) offer the market the much-needed comfort on the earnings front in the coming quarters.

For now, analysts are trying to decode management commentaries to understand how tough the coming quarters are going to be.

For example, the HUL management used the term ‘recession’ in its post-earnings press conference.

FMCG is recession-resistant and not recession-proof, it said. Kotak Institutional Equities noted that the always-very-measured HUL management picks its words carefully. So, when HUL uses the word ‘recession,’ it generally isn’t a one-quarter blip, Kotak said. The brokerage feels there has been a massive shift in commentaries of FMCG companies – from ‘steady, strong, stable’ three months back to ‘stimulus needed’ now.

“The generally-bullish Godrej Consumer and Dabur managements belaboured on the need for further fiscal stimulus for demand to improve,” it noted.

FMCG is not alone. Auto, NBFCs and even IT firms have sounded caution. For India’s largest two-wheeler maker Hero MotoCorp, March quarter margin at 13.6 per cent was its lowest in several quarters, and it does not expect things to change soon.

The management is expecting 13.5-14 per cent margin in the near term. It projects FY20 volume growth to be in mid-single digits because of muted demand, BS-VI transition and some residual impact of insurance price hike in FY19.

Largest auto maker Maruti Suzuki also failed to lift market sentiment. The automaker is expecting FY20 to be unpredictable due to the impact of the forthcoming regulations (safety norms, BS VI), even as it is confident of beating SIAM’s 3-5 per cent passenger vehicle sales growth. Consumers are believed to either advance their purchases due to price hikes or may wait for more technologically-advanced vehicles. The auto major is expecting June quarter to be tough, but expects volumes to pick up later.

“Diminishing product excitement can continue to weigh on earnings in a weak demand environment,” Edelweiss Securities said.

In the NBFC space, most companies witnessed a rise in cost of funds. “The second half of FY19 was one of the most stressful periods for NBFCs in terms of access to liquidity. Most companies witnessed a rise in cost of funds – some of which was passed on to borrowers and some absorbed by the companies. There have been some delinquencies in builder finance, as evidenced by the results of LIC Housing and Piramal Enterprises,” said Motilal Oswal Securities.

While demand for core home loan remains healthy, auto loan demand has taken a hit. Vehicle finance NBFCs have guided for slowing growth in FY20 post March quarter results.

In the case of IT sector, the quarterly numbers did not throw up any major surprises, and they were mostly in line with expectations .“But larger peers continue to be cautious in their commentaries and have shown a halt in their growth acceleration,” Motilal Oswal said.

In the case of Reliance Industries too, which has over 10 per cent weightage in equity benchmarks Sensex and Nifty, some moderation in earnings growth is visible.

Morgan Stanley in a note on Wednesday said RIL’s two-year earnings upswing looks to reverse, yet investors are dismissing refining headwinds amid tighter crude markets.

A rising glut in the gas and polyester markets could also slow growth into 2020, the global brokerage said, suggesting limited upside for the stock amid core business drags, with no material capacity additions.

“Downside earnings surprises in the energy business should unfold and attract increasing investor attention – a complete reversal in narrative after the positive triggers that played out since 2017,” it said.

A total of 19 Nifty companies reported sales, Ebitda and profit growth of 12.6 per cent, 5.3 per cent and 8.6 per cent YoY, respectively, till Wednesday.

“This year, the estimates would be around 25 per cent earnings growth. Even if we do not end up showing such growth, we will come somewhere close to 18-20 per cent growth. What matters more is the quality of earnings growth. If it is just a mathematical increase – most of the earnings growth is going to come from the banks which have gone through the provision cycle. If that is the only reason, I would be a little wary of the earnings cycle rebound,” Ravi Dharamshi, CIO of ValueQuest Investment Advisors, told ETNOW.
0Comments

Also Read

Wall St boosted by upbeat earnings

Target, Lowe's earnings drive Wall Street higher

Earn respect of officials: PM to ministers

Be wary of optimistic analyst earnings views, Emkay says

Coffee Day Enterprises delays June quarter earnings

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service