Corp growth wheels set to turn faster

The corporate sector is firing on all the cylinders with the governments stimulus package and a liberal money policy adding to the firepower....

The corporate sector is firing on all the cylinders with the governments stimulus package and a liberal money policy adding to the firepower. The recovery story is expected to get more riveting as the third quarter numbers of listed companies,especially the earnings growth largely a low-base phenomenon is expected to keep pace with the uptick in revenues,implying the absence of major cost pressures. It could also take the GDP growth above 8 per cent for the quarter.

Even as a debate rages over the timing of stimulus exit,market leaders are expected to report a strong recovery in revenues,with a growth of 25 per cent for the third quarter Q3 the highest in the last five quarters. This is largely on account of the low base effect of Q3. On a sequential basis,however,we anticipate a mere 4 per cent growth, said an analyst with Religare Hichens Harrison.

The market is in a good mood on the back of stronger business sentiments domestically and globally. Expectations are running high from Q3 FY10 results, said Avinash Gupta,Assistant Vice President,Bonanza Portfolio Ltd. The results of the December quarter of 2008 were impacted due to fall of Lehman Brothers and results for most of the companies were negatively impacted. Now the scenario has changed. There is surplus liquidity in the money market now. Rate sensitive products and commodities which had seen a sharp fall and companies which were dependent on overseas demand are back in the reckoning. The domestic consumer who deserted the market is also back. We expect excellent performance from the listed companies in 3rd quarter backed by recovery in economy and pick up in demand, said Kishor P Ostwal,chairman and managing director,CNI Research Ltd.

Global demand has improved,exports have picked up after several months and prices of commodities have bounced back. The adjusted earnings of the companies in the Sensex are estimated to grow at 16.1 per cent year on year during the third quarter. The growth in the earnings of Sensex companies ex-oil companies would mainly be achieved on the back of a relatively better performance in the automobile sector a stellar 285.4 per cent earnings growth supported by better volumes and a lower base of the previous year,the cement sector a 63.7 per cent earnings growth and the capital goods sector a 26 per cent earnings growth. On the other hand,sectors such as real estate,pharmaceuticals pharma and telecommunications telecom are likely to act as a drag on the Sensexs earnings, said a Sharekhan analyst.

Even plastic industry and machinery sectors will show robust growth. The surprise pack will be telecom especially after the sector downgrade on per second billing. IT growth will be modest and below analysts expectations. Civil aviation,realty and infrastructure will underperform in quarter 3 and will find pick in Q4. The IT sector could be affected in 4th quarter because of appreciation of Indian currency, Ostwal said. At 29 per cent growth,our adjusted profit growth estimate for Sensex companies represents a sharp recovery from the subdued numbers seen in the last four quarters. Adjusted profit after tax,pegged at Rs 35,000 crore,will be the highest in the last 10 quarters, Religare said.

With the yields moving in the northward direction by 40 basis points in this quarter due to speculation over the reversal of the interest rate cycle,most banks are likely to take a hit on their investment portfolio due to the marked-to-market MTM provisioning,thereby adversely affecting their bottom line. The poor credit offtake now at 10.9 per cent as against 23 per cent in the third quarter a year ago has made the situation difficult for banks.