A busy quarterly earnings season has just kicked off and these numbers are expected to trigger a lot of stock-specific action on Dalal Street.
Analysts are projecting that a low base effect of banks will help the Nifty50 register double-digit top line as well as bottom line growth for March quarter.
However, the telecommunication sector is expected to continue as the laggard due to demonetisation and the threat from Reliance Jio while a slowdown in auto and auto ancillary space as well as high base of cement sector in Q4FY16.
Market experts say excluding financials, other sectors from the Nifty50 pack are likely to post negative growth in March quarter.
Stock wise, robust numbers expected from companies such as Maruti Suzuki, IndianOil, Hindustan Zinc, Eicher MotorsBSE 0.01 %, ONGCBSE -1.08 %, Punjab National BankBSE 1.92 %, SBI, JSW SteelBSE 1.73 %, CiplaBSE 0.01 % and many others.
According to JM FinancialBSE 3.74 %, earnings of Nifty50 companies are estimated to grow 13.4 per cent year-on-year (YoY) in Q4FY17 led by financials. Telecom and consumer discretionary sectors may drag earnings growth during the quarter.
CRISILBSE 0.32 % Research expects revenues of companies in key sectors, excluding banking, financial services & insurance, and oil, to rise 8.5 per cent year-on-year during the fourth quarter of 2016-17.
Growth is expected to be driven by rise in commodity prices along with a pickup in demand on the back of continued government investment in the infrastructure space. However, export-linked sectors are expected to see slowest growth in 12 quarters owing to pricing pressure and a marginal appreciation in the rupee.
JM Financial believes excluding financials, earnings growth should be in the negative at 2.5 per cent. Stocks that projected to post highest earnings growth include Cipla, ICICI BankBSE -0.05 %, JSW Steel, SBI, Jubilant Life SciencesBSE -1.22 %, Bank of BarodaBSE 0.23 %, IndianOil (IOC), Punjab National Bank (PNB), Shriram City Union FinanceBSE -1.73 % and ABB India.”
Brokerage Motilal OswalBSE 1.14 % said YES BankBSE -0.36 %, Kotak Mahindra BankBSE 1.01 % and IndusInd BankBSE -0.12 % are expected to post strong quarterly performance from the banking space.
BHEL, Hindustan ZincBSE -0.89 %, Vedanta, Tata Steel, IOC, GAILBSE 3.64 %, ONGC and Petronet LNGBSE 3.43 % are also expected to report robust numbers for Q4. The brokerage believes Eicher Motors, Maruti Suzuki and Escorts are likely to stand out with 29 per cent, 17 per cent and 69 per cent growth, respectively.
Sectorwise, constant currency revenue growth for IT companies is likely to remain soft. JM Financial says OFSS and HCL TechnologiesBSE 0.07 % have the highest earnings growth potential in the sector.
Anand Rathi Financial Services believes the full impact of the upswing in fuel prices may drag Q4 earnings of cement companies. Revenues of cement players are expected to grow at 8.4 per cent year on year, while Ebitda and PAT may slide 1.7 per cent and 27.8 per cent year on year. The brokerage is bullish on Dalmia Bharat and Birla Corp.
“We expect a promising FY18 with re-monetisation and a turnup in demand due to capital formation, infrastructure push and low-cost housing projects,” Anand Rathi said in a research report.
Dalmia Bharat is the third-largest cement operator in India, with capacity going up from 1.2 million tonnes in 2005 to 25m tonnes in 2016. From being a dominant player in south, the company has diversified into eastern and northeast Indian markets.
Birla Corp caters to the central (better demand-supply equation), eastern (high growth) and northern (mounting demand) markets, which insulate it from the risk of geographical concentration.
In the pharma space, market experts have pegged aggregate revenue of large formulation firms to grow 5-5.5 per cent, thanks to new product launches by Natco PharmaBSE 8.15 %. Revenue of large formulation players is expected to grow 1-3 per cent, propelled by healthy exports. However, pricing pressure as well as a strengthening rupee are expected to put pressure on revenue growth.
Revenues of FMCG players are slated to improve 5-7 per cent year on year, led by volume growth to the tune of 3-5 per cent and marginal improvement in realisations. “Improving consumer sentiment and easing of cash crunch are expected to drive volume growth during the quarter,” said Crisil Research.
Despite healthy revenue growth in Q4 of FY17, operating profit margins are expected to drop by 100-150 basis points in Q4. “Higher raw material prices are expected to put downward pressure on auto, FMCG, airlines, petrochemicals and tyre companies . On the other hand, a sharp rise in realisations on steel and aluminium may result in healthy margin expansion of 500 basis points and 300 basis points, respectively.”