With the momentum generated by expectations from the Budget fading, the Street is likely to focus on the recently commenced earnings season for next directive move in the equity market. Analysts expect the first quarter numbers of the fiscal 2014-15 to be broad-based with even domestic consumption dependent sectors witnessing moderate improvement in earnings.
Various analyst estimates peg the earnings of the top-30 companies to grow 15-18% y-o-y in three months to June 2014, while the top line could report revenue growth in the range of 14-16%. Export-oriented sectors, namely IT and auto (Tata Motors), are again seen dominating the contribution to the Sensex earnings, even as energy giant ONGC and telecom major Bharti are also likely to report strong profit numbers.
According to Edelweiss Securities, as the impact of INR depreciation starts fading, earnings growth in export-oriented IT and pharma sectors may slow down from the June quarter. During the June quarter, the rupee appreciated against the dollar with its average value rising 6.8% q-o-q to 61.87. Amongst the IT pack, TCS and Wipro are seen driving the earnings growth even as sectorwide margins are expected to come down sequentially on the back of wage hikes.
Analysts are also anticipating a recovery in sectors that are driven by domestic consumption and investments. While Edelweiss expects cement, capital goods and consumer space to clock mild improvement in operating metrics, BNP Paribas also thinks that the earnings growth of domestic cyclical sectors is showing tentative signs of recovery. BNP is forecasting the net profits of its capital goods universe under coverage to grow 16% y-o-y in the quarter and the engineering and construction (E&C) pack to report an 11% growth.
“Among PSU banks, with the exception of Punjab National Bank... we believe that the worst of the provisioning cycle is over,” added a note by the foreign brokerage.
For the banking sector, the Street is broadly expecting a normalisation of loan growth and flat net interest income (NII) sequentially. However, treasury income, along with the base effect, could provide a thrust to the earnings even as credit cost stemming from NPA slippages and provisions for unhedged foreign currency exposure could add to the overall provisioning.
Consumer goods companies are seen facing volume growth challenges for another quarter while higher raw material cost and advertising spends could continue to weigh on margins. As per Barclays Capital,