Going by the numbers that we?ve seen, whether it?s volumes at auto firms or exports that have fallen both in April and May or even the anaemic growth in the core sector, it doesn?t seem like India Inc would have done too well in the June, 2012 quarter. Indeed, the environment has been tough, with companies grappling with shortages of key inputs or a weak rupee that will play havoc with the profits of firms that haven?t covered their exposure. Besides, since corporate India hasn?t added capacity for over a year now, given lack of clarity on policy as also high interest rates, order books at engineering firms have been growing very slowly, at times even shrinking. Indeed, how weak demand is, is evident in the substantially smaller number of launches rolled out by real estate firms in the quarter. Even as the capital goods and infrastructure companies could continue to see pressure on their operating margins, the consumer goods sector, which has managed do to well in an inflationary environment, could turn in reasonably good results this time too.
But the going has been tough for oil marketing companies that will be hit not just by forex-related losses but also inventory losses since prices of crude oil have come off; moreover, net under-recoveries would be substantial since retail prices of diesel haven?t been raised. Indeed, the utilities space too is likely to disappoint: while both merchant realisations and volumes should rise sequentially and they would have also have saved on fuel costs with the fall in spot prices of coal, in the latter half of the quarter, the fall in the value of the rupee could offset some of those gains. Most technology firms would have found the going tough with clients compelled to be cautious and IT spends remaining flat, if not falling; moreover, adverse cross-currency moves would have made the quarter even more challenging. As for the banking pack, it?s expected to do reasonably well, earning good yields on assets on an average loan growth of about 17%.
While there is no doubt a fair amount of pricing power available with one section of industry?cement firms, for instance, raised prices in March across regions and FMCG firms too have been able to take some price hikes?there are other spaces like telecom where competition remains keen. On balance, India Inc?s topline growth in the three months to June 2012 could come in at fairly robust levels of around 18-19%. However, that might not be enough to push up operating profit margins, although input costs would have dropped. Margins may, however, start bottoming out from the June quarter. As for the bottom-line, earnings for the Sensex set of companies are estimated to grow at close to 14% y-o-y. Excluding SBI?where there is a big base effect due to large write-offs last year?they could end up rising by close to10%. If India Inc manages to turn in a similar set of results it would be a good show.
