Several broking houses have painted a grim picture of what to expect from the third quarter corporate results for this fiscal. Analysts are expecting another season of weak earnings for the quarter ending December 2011 owing mainly to higher interest rates, uncertainty in the economic environment and depreciating rupee.
According to experts, rising raw material costs shrunk profit margins of companies and investments also became dearer as borrowing costs increased on the back of higher interest rates.
“We estimate (that) almost a quarter of companies in our broader coverage will report over 20 per cent drop in earnings, suggesting a certain concentration in pain, while enough companies are likely to post decent gains,” said a report from Citi.
“While non-commodities, led by consumer goods, IT services and pharma, should report strong numbers due to sustained demand growth and favourable currency movement, earnings of commodities are likely to contract by 12 per cent y-o-y,” said an IDFC report.
While the depreciating rupee helped the IT sector, healthy consumer demand along with lowered advertising spends and softening of input prices would see sectors like pharma and FMCG post better numbers, said analysts. “Growth in pricing due to observance of strong industrial discipline has pushed the cement sector to post strong sales and profit growth,” said a report from Prabhudas Lilladher.
Metals, oil and gas, construction and power utilities are slated to be the sectoral losers, say several reports.
Deteriorating asset quality continues to haunt the financial sector, say analysts. Flat net interest margins would see a muted net interest income growth of 13 per cent on a year-on-year basis, said reports. PSU banks' NII could be up 11.5 per cent, while that of private banks is expected to be up more, at 19 per cent.
However, with the interest rates peaking and expectations being modest, a further earnings downgrade is unlikely, say analysts. “Overall, decelerating domestic growth and the uncertain global macroeconomic environment are expected to keep the equity markets range-bound in the medium term. However, sharp policy rate cuts by the RBI from April 2012 to support growth and a more proactive reform-oriented approach from the central government after the elections could drive a sharp turnaround in market sentiments,” said the IDFC Securities report.