The December quarter of 2014-15 has dashed all hopes of India Inc which was counting on a strong comeback. If the quarterly performances of Nifty 50 companies are any indication, the turnaround in their fortunes may take some more time.
India Inc posted dismal earnings for the quarter, with three sectors -- oil & gas, metals and capital goods -- dragging the overall growth into the negative space. Companies in oil & gas and metal sectors posted a negative net profit growth of over 28%, while capital goods' companies fell 25.8% year on year.
Outperforming sectors among in Nifty 50 were power, banks and IT, with companies in these sectors performing comparatively better in a quarter that was muted in terms of corporate earnings. On an average, net profit de-grew 5.19% year on year. Net sales of all Nifty 50 companies fell marginally 1.10%.
Market experts believe that the December quarter earnings mirror the current situation of stagnating industrial activity and decline in demand. Kunj Bansal, chief investment officer, Centrum Broking, said the below-par earnings of capital goods and metal sectors were reflective of slowdown in the economy.
Capital goods and infrastructure major Larsen & Toubro (L&T) witnessed a dull quarter as its metallurgy, heavy engineering and hydrocarbon businesses saw fall in revenues. The company management attributed the lack of recovery in investment momentum as one of the reasons for the dim numbers. Operating margins of capital goods sector also took a significant knock in comparison to the same quarter in the previous year.
G Chokkalingam, founder and managing director, Equinomics Research and Advisory, said Bharat Heavy Electricals and L&T have a robust order-book but there is tremendous pressure on the execution front as well as getting the payments back due to stress in economy.
Ambareesh Baliga, an independent market expert, said the capital goods sector would post better earnings, provided there are certain announcements in the budget indicating an increase in capital expenditure by the government.
Fall in international prices of metals like zinc and aluminum adversely impacted the metal manufacturers. The fall in exports of China in the last few quarters led to Chinese manufacturers resorting to dumping in other developing countries, impacting domestic prices.
Chokkalingam said, "Chinese dumping negatively affected the steel sector and the domestic demand growth is also less than 1%."
The oil & gas sector saw a fall in net sales of 16.01% as the fall in the crude oil prices wasn't matched with the increase in demand. Also, the upstream companies had to face the problem of the fall in price of their products while the downstream companies faced inventory losses.
A K Prabhakar, an independent market analyst, said, "The future for oil companies is bleak as the crude oil prices remain volatile and also the uncertainty surrounding the subsidy sharing mechanism to be adopted by the government."
Power sector proved to be an outperformer in the December quarter with the net profit growth of 17.56%. Experts believe that the increased capacity utilisation helped the power companies cater to the burgeoning demand in the sector. With the coal auctions currently going on, the outlook for the sector looks positive as the issue of fuel linkage is hoped to get addressed.
In the banking sector, there was a clear demarcation in the performance of PSU banks and private banks as the asset quality stress was clearly seen among the PSU banks affecting their profits. Analysts said the new norm of including restructuring assets under NPAs, though a good move, will increase the NPA numbers of the banks.
The performance of pharma sector remained subdued with sales growth of 3.90% and profit growth of 0.65% as the cross currency movements hurt the sector badly. Also, the US FDA notices to pharma majors, including Sun Pharma, and slow growth in domestic formulation business affected the sector negatively.
FMCG sector saw discouraging volume growth with HUL posting a volume growth of 3%, but the sector saw a net profit growth of more than 5% owing to fall in input costs.
"There will be an uptick in the demand for essentials, but discretionary spending will take some time to find traction," said Baliga.
The auto sector saw margins drop due to intensified competition. Although passenger cars and two-wheelers performed well, tractors and large commercial vehicles dragged. But experts believe that revival in the economy and expected normal monsoon this year will give a boost to the sector.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}