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5 things to expect from September quarter results
The stock market has seen big highs and lows this year. This was because of many external factors that drove investors towards the bull and bear sides of the ring.
Many things worked in the favour – good monsoon, the passage of reforms like GST, and an interest rate cut by the RBI. Now, though, all eyes will be on the corporate performance in the July-September 2016 quarter.
Here is what you can expect from the results this season:
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Better than last time:
Last quarter’s earnings did not bring much good news. This quarter, the Sensex companies are likely to grow at a faster pace, according to a report by Kotak Institutional Equities. “We expect the net profit of the BSE-30 Index to grow 4% year on year,” the report said. This is higher than the 0.99% profit growth in the April-June quarter. This increase in profits is likely to be based on a 3.7% growth in total sales for the Sensex companies compared to last year, the report added. Last quarter, net sales grew 1.5% on a year-on-year (YoY) basis.
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The leading sectors:
The growth is not exactly across-the-board. Companies from sectors like automobile, cement, consumer products and industrials are expected to lead the Sensex in terms of growth. In fact, auto companies are likely to one of the strongest performers in the quarter. “We expect auto companies under our coverage universe to report 35% YoY growth in net profits,” the Kotak Institutional Equities report added.
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Banking, the laggard:
The 4% growth is the average growth of all the 30 companies that form the Sensex. Now if you take out the banking and financial companies from the mix, the average profit growth could shoot up to 9.8%, as per the Kotak report. This means that the banking sector is likely to be a big drag on overall earnings this season. “Earnings will likely decline 15% YoY as banks will likely make high provisions for bad loans,” the report said. Some major underperformers could be public sector banks, Axis Bank and ICICI Bank.
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Tech companies weak:
If you have noticed, IT sector stocks have underperformed in the recent past. In fact, the BSE IT index is down 11.43% in the last one month, as of October 13th. This is because companies are expected to post poor results. This July-September quarter is likely to be the weakest of all September quarters in the last eight years, as per the Kotak Institutional Equities report. This could be because of poor growth in order growth, delays in projects as well as the depreciation of the British Pound.
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Telcos to suffer:
The other sector that is likely to post poor results is the telecom sector that is undergoing systemic changes thanks to 4G and Reliance Jio. Most of the major players like Bharti Airtel and Idea Cellular are likely to report a fall in revenue in comparison with the June quarter. However, the revenues may grow when compared to the September 2015’s numbers thanks to a strong mobile data business. However, costs are still on the higher side. This is expected to limit growth in profits and margins.
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40%
The auto industry is a cyclical sector, while the consumer goods sector is a defensive industry. Cyclical sectors are those that do really well when the economy grows, but poorly when the economy slows. Defensives, on the other hand, are those that grow steadily through different economy conditions. In the current quarter, cyclical sectors are expected to drive earnings. They are likely to account for 40% of the total earnings, as per a Livemint report.
