Cautious optimism ahead of earnings

Cautious optimism ahead of earnings

On Friday,when IT giant Infosys kicks off the quarterly earning season,Dalal Street bulls will come to know whether they are going in the right direction.

On Friday,when IT giant Infosys kicks off the quarterly earning season,Dalal Street bulls will come to know whether they are going in the right direction. They started betting on good corporate performance after seeing several positive signals — like the rise in industrial production index and the growth in advance tax paid by corporates. With the Sensex at the 17,000 level,investors are praying for good numbers from key companies.

“There is optimism about second quarter results after advance tax collections registered a positive growth in the second quarter after witnessing a negative growth in the first quarter. Corporate advance tax and advance personal income-tax were up by 14.7 per cent and 1.7 per cent,respectively in the September 2009 quarter,” said an analyst with Ashika Stock Broking.

After a weak first quarter,thanks to the economic slowdown,fall in demand,industrial output and slumping exports,market pundits are optimistic about the second quarter (July-September) of 2009-10 though there could be weak results from telecom,realty,pharma and even IT companies. “We are hopeful about an overall topline growth of 15 per cent in Q2 (Y-o-Y). I feel the growing segment is the commodity sector. For instance,steel and oil & gas sectors were doing well in the last quarter. Sectors like auto and cement are also improving… but not as impressive as the commodities sector. The sectors which are lagging include realty,fertiliser,retail and shipping & logistics,” said Deven Choksey,managing director,KR Choksey Shares & Securities,hinting that it could be a mixed bag.

It estimates a profitability growth of 0.9 per cent for Q2 (Y-o-Y). This is considered a good performance as first quarter witnessed a negative profit growth. “Auto and cement sectors may come out with good numbers. But in sectors like real estate and shipping and logistics,the profitability and growth were seen downward in the last 8-10 months. Only in the last quarter (Apr-June),they showed signs of revival as banks did a favour by cutting rates and thereby pushing their sales to a much improved level,” said Chetan Majithia,Head,Crisil Equities.


Anand Rathi Financial Services expects banks to report a mere 9.8 per cent (Y-o-Y) profit growth in Q2,mainly due to slowing business growth,subdued NII (net interest income) growth and lower treasury gains. “Credit growth has further decelerated in the quarter (13.4 per cent Y-o-Y and 1.7 per cent Q-o-Q),with the incremental credit-deposit ratio weak at 21.6 per cent. It was more than thrice that a year ago at 66.9 per cent).”

On the IT sector,an analyst with Religare Hichens Harrison said the rupee appreciation remains the most important risk for the sector. “A sharp rupee appreciation (4-5 per cent Q-o-Q) could negate the impact of recovering volume growth. Forex hedges are not adequate to deal with sharp rupee appreciation. In our opinion,Q1 was the trough quarter for volumes and pricing. For Q2,we expect volume growth for the companies to be 1-2.5 per cent Q-o-Q. Reported US dollar revenue growth could be marginally higher due to cross-currency tailwinds,” he said.

In the oil & gas segment,profitability for PSUs would largely depend on the subsidy sharing scheme. “We expect gross under-recovery (UR) to be Rs 11,200 crore,of which cooking fuels would account for Rs 8,000 crore. Reliance Industries is expected to report Q2 earnings of Rs 3,720 crore (flat Q-o-Q) as higher oil & gas production gets offset by lower refining margins,increased depreciation and interest costs. The company is expected to post 21.9 per cent Q-o-Q EBITDA growth,” said a note by ICICI Securities. With ENS inputs