What top brokerages expect from September quarter earnings
It looks grim
The earning preview for the September quarter, which begins Thursday, remains bleak with most companies having already paid their advance tax and thus unable to reap the benefits of the corporate tax reduction announced last month.
"We are not assuming any benefits from the corporate tax reduction in 2QFY20 as many companies would have paid advance tax," brokerage firm Motilal Oswal said in its result preview.
Here's a look what top brokerages are saying:
Predicting weak earnings, Motilal Oswal said, the operating environment in 2QFY20 was "perhaps the most sombre since the June '17 quarter (1QFY18), which had witnessed massive down-stocking ahead of the GST implementation from July '17."
The brokerage said it expected "tepid operating performance" by FMCG companies like Britannia, Colgate, Dabur, Emami, GSK Consumer and Nestle. FMCG sales are often used to predict the health of the rural economy.
The brokerage estimated that profit before tax (PBT) would decline 4.6 per cent YoY in Q2FY20 led by a YoY decline in PBT in sectors like auto, metals & mining, oil & gas and telecom; while Edelweiss saw a revenue or profit decline of 3 per cent or 6 per cent.
The PAT of Nifty companies is likely to contract 4 per cent YoY in September quarter, the brokerage said. While, a part of the hit in Q2 is likely to be on account of one-time mark down of DTA of corporate banks, even excluding it, earnings momentum is still soft and earnings upgrades are likely to be modest.
The brokerage in its earning preview said, "We expect companies under coverage to register revenue, EBITDA and Profit after tax (PAT) growth of 7 per cent, 15.7 per cent and 17.1 per cent in Q2FY20E, lower than in the previous quarter."
State of economy
The GDP growth rate of the economy has slipped to 5 per cent in the first quarter of FY20, the lowest in over six years. In a bid to revive growth, the Modi government last month announced a sharp tax rate cut for domestic companies from 30 per cent to 22 per cent. Delivering another rate cut last week, the Reserve Bank of India said the GDP growth slump in the first quarter has been followed by generally weaker high-frequency indicators for the second quarter.