Earnings growth during the third quarter of the current financial year (FY) is expected to be muted due to a tepid festive season.
According to an earnings preview by Motilal Oswal Financial Services, the third quarter earnings will be "lacklustre".
"Global cyclical stocks like metals and oil & gas - the drivers of earnings growth over the last few quarters - are looking jaded, given the correction in commodity prices and are likely to post a decline of 13% in profits after five consecutive quarters of strong growth," Motilal Oswal said in its preview report. The report said trends for automobile have worsened, with a sharp moderation in volumes and profit growth.
Financials are likely to drive the third quarter earnings, with corporate banks leading from the front, while public sector banks are also likely to deliver a healthy performance, aided by treasury marked-to-market gains and improving asset quality trends, the report said.
Capital goods will also have a healthy quarter and information technology (IT) is likely to post the fourth straight quarter of double-digit profit growth. Non-banking financial companies (NBFC) might face a significant deceleration in profit growth but are still likely to post a respectable double-digit number, as per the report.
The brokerage firm expects companies under its universe to report a profit after tax (PAT) growth of 2% year on year, dragged by inventory losses in oil marketing companies (OMCs) and moderation in autos. Global cyclical stocks are likely to post a fall of 13% in profits while defensive stocks are expected to post a 10% on-year profit decline, impacted by rising losses in telecom and muted profit growth in utilities. Domestic cyclical stocks, however, are expected to post a 36% growth, the highest in the last 28 quarters, led by banks.
Sanjay Mookim, director, global research, DSP Merrill Lynch said third quarter numbers will be very volatile. According to him, there is a low base effect since some companies reported poor quarterly earnings last fiscal, and this may drive the optical improvement in the third quarter aggregate Sensex numbers.
"Otherwise, we don't expect anything spectacular," he said.
Prabhudas Lilladher in its preview report said that it estimates 13.3% sales growth, 11% growth in earnings before interest, taxes, depreciation and amortisation (Ebitda) and 2.2% fall in adjusted profit after tax during October-December quarter. Sales growth will be led by metals, oil and gas, consumer and banks. Aggregate margins, on the other hand, will decline by 312 basis points (bps). A basis point is one-hundredth of a percentage point.
"We expect muted performance from oil and gas, NBFC and autos. Oil and gas will show the impact of inventory losses while banks will gain due to lower provisions in Q3FY19. PAT growth excluding oil and gas amounts to 19.9%," the Prabhudas Lilladher report said.
Kotak Institutional Equities in its preview report said the net income for its coverage universe is expected to be flat on a year-on-year basis. While it expects strong growth in the net income of banks, capital goods and consumer staples sector, a week quarter is expected for automobiles, oil and gas and consumable fuels and telecom.
The stockbroking firm expects banks would see a strong growth due to stronger loan growth and improvement in asset quality further aided by a weak base quarter, capital goods would be driven by base orders, uptick in pace of execution and low base quarter, and there will be an accelerating underlying demand in consumer staples sectors. On the other hand, automobiles is expected to see a weak quarter due to lower sales volumes, while decline in realisation for upstream companies and large adventitious losses for downstream companies will impact oil, gas & consumable fuels. Telecom, too, will face revenue pressure due to intense competition, the Kotak report said.
According to Antique Stock Broking's report, earnings for its coverage universe for is likely to grow by 3% on-year and a whopping 25.7% excluding energy. Revenue growth is likely to be strong at 27.4% while the Ebitda margins (excluding banks, and oil marketing companies) are likely to dip by 120 bps year on year to 17.8%.
According to the Antique report, the third quarter is expected to be a muted quarter for auto players due to headwinds such as insurance cost hike, higher fuel prices, interest rates and NBFC liquidity crunch.
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The brokerage firm expects companies under its universe to report a profit after tax (PAT) growth of 2% year on year, dragged by inventory losses in oil marketing companies (OMCs) and moderation in autos. Global cyclical stocks are likely to post a fall of 13% in profits while defensive stocks are expected to post a 10% on-year profit decline, impacted by rising losses in telecom and muted profit growth in utilities. Domestic cyclical stocks, however, are expected to post a 36% growth, the highest in the last 28 quarters, led by banks.
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