MUMBAI : Economic recovery and festive sales are expected to fuel healthy corporate earnings in the December quarter, although a broad-based recovery remains elusive. Analysts said sectors such as metals, oil and gas, banking, financial services and insurance (BFSI) and IT will boost earnings momentum in fiscal third quarter, while commodities and automobiles could lag behind.
The quarter was marked by rising commodity prices and technology adoption, at a time when the viral pandemic remained subdued and global central banks signaled monetary policy tightening ahead.
Trideep Bhattacharya, chief investment officer, equities, Edelweiss Mutual Fund, said that while overall earnings will reflect strong earnings, there will be a discrepancy between users of commodities and workers tied to commodities. âWe believe that revenue growth will certainly reflect improving economic conditions, while on the earnings front we expect a high impact from commodity inflation year over year. However, companies are also expected to see a slight improvement in their margins on a sequential basis. Among the triggers and headwinds, a strong holiday season and improving credit growth are positive, headwinds include a transient slowdown in rural India and high commodity prices, âhe said. -he declares.
Amid growing concerns about high valuations, Indian markets gained more than 20% in 2021, overtaking emerging markets. As central bankers around the world focus on controlling inflation and standardizing policies, delivering corporate profits has become even more crucial. However, a third wave of covid triggering further restrictions could derail the economic recovery.
Gautam Duggad, Head of Research, Institutional Equities, Motilal Oswal Financial Services Ltd, expects Nifty companies to achieve sales, EBITDA and net profit growth of 29%, 17% and 26% in year-on-year third quarter respectively. “However, the breadth of profits remains low, with 42% of companies likely to post declining year-over-year profits while 38% are expected to post profit growth of more than 15%,” he said. said Duggad.
Deepak Jasani, head of retail research, HDFC Securities Ltd, said profits for Sensex companies could rise 20% year-on-year and 21% for Nifty companies.
Raw material prices remain high, reducing the margins of companies in highly competitive sectors. Management’s guidance on revenues and margins for the fiscal fourth quarter will remain a priority, Jasani said.
Despite the economic recovery and festive sales, consumer demand in the third quarter could be lukewarm due to price increases to offset rising commodity prices.
During the quarter, Brent crude prices fell 1.66%, compared to a sharp 25% increase in the same quarter a year earlier. Copper prices rose 6% in the December quarter.
âAlthough we have seen a cooling of some commodity prices, the prices of palm oil, crude derivatives and vegetable oils have remained at high levels. We believe FMCG (Fast Track Consumer Goods) companies would continue to experience gross margin pressure in the third quarter of FY22 despite the price increases. Likewise, operating margins are also expected to contract during the quarter, âsaid Pankaj Pandey, research manager at ICICI Direct. He believes the overall economic recovery and festive surge will drive profits in the December quarter, but the main hurdle continues to be commodity inflation affecting margins. in some pockets.
Based on favorable third quarter last year base, Pandey expects companies in ICICI Direct’s hedging universe to achieve overall revenue growth of 28% in the December quarter. .
Sorbh Gupta, fund manager, equities, Quantum Mutual Fund, agreed that margin pressures will play out in the third quarter for some companies, particularly in the B2B segment and unbranded consumer products.
âConsumer Staples, Energy Intensive Industries and Automobiles are the sectors that could face some pressure on margins during the quarter. However, we believe that companies operating in the high-end segment of the market will likely have a better ability to pass on inflationary pressure, âGupta said.
Analysts will be watching for management comments on inflation, interest rates and the impact of the third wave of covid.
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