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Tuesday, 10 January 2012 00:00
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While Prime Minister Manmohan Singh has injected some realism into the GDP growth projections for the current year (FY12 will see 7% growth, he said at the Pravasi Bharatiya Divas), expect a slew of poor corporate results over the next few months in keeping with this new reality. High interest rates, moderate sales despite Q3 being the traditional festival season and the impact of the sharp rupee depreciation are all likely to take their toll—Infosys and HDFC will declare their results on January 12 and this will be an important indicator for how the rest of the results season will pan out. Various estimates put forward by brokerage houses for the quarter ended December 2011 show that despite net sales projected to grow at over 20% year-on-year, profit after tax for Sensex companies is projected to grow at anywhere between 3.3% and 12.4% year-on-year. Motilal Oswal estimates that though the net sales of Sensex companies in the quarter ended December will grow at 22% year-on-year, the growth in profit after tax will be 9% year-on-year, which will be the slowest in the last three quarters. Kotak Institutional Equities expects the net income of Sensex companies to grow at 12.4% despite a 27.3% growth in net sales for the quarter. For the large universe of firms Kotak tracks, it is looking at a 31.8% hike in sales but a fall in profits by 8.4%. Fortunately, thanks to a change in rules, mark-to-market loss recognition due to the rupee’s collapse is more relaxed, else there would have been mayhem.

The most problematic sector, apart from capital goods firms where the order book position still doesn’t look good, will be banking where Kotak expects a 50-80 bps fall in NIM—the pressure on restructuring and need for more capital, as RBI’s Financial Stability Report indicated, will increase over the next few quarters with bad loans rising faster than loans. Kotak is looking at higher operating profits for HDFC Bank and ICICI Bank but lower ones for SBI, Bank of Baroda and Bank of India. Sector-wise, automobile companies are expected to report stable numbers because of moderating raw material costs though volume growth across all segments, except light commercial vehicles, has begun to taper off. Margins of two wheelers and tractor companies will be keenly watched. Edelweiss Research expects the top line of capital goods sector in Q3FY12 to decline sharply at 13% year-on-year as compared to 23% growth in Q3FY11 on the back of slower pace of order intake, especially in the power segment. For banking, Motilal Oswal expects restructured loans are likely to increase quarter-on-quarter and a slowdown in loan growth across banks will mean low fee income. Infosys’s numbers will give some indications as to how the combination of poor global growth and a weaker rupee may pan out, not just for IT firms but for exporters as a whole.


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