Global Cyclicals like metals and oil & gas which were the drivers of earnings growth over the last few quarters – are looking tired, given the correction in commodity prices, suggest experts.
December quarter earnings started on a mixed note with subdued results from TCS and Infosys earlier this month. Global cyclicals like metals and oil & gas that were the drivers of earnings growth over the last few quarters are looking tired now, given the correction in commodity prices, suggest experts.
“Earnings in the quarter are likely to be a bit subdued as margins are likely to be squeezed due to higher raw material prices. Crude oil was up 36 percent YoY in INR terms; similarly, metals were up by 24 percent YoY in INR terms,” Karvy Stock Broking said in a note.
“While raw material prices have declined since mid-November, this may help boost margins in the next quarter i.e. Q4FY19. For the quarter, consensus expects Nifty constituent revenues to grow 11 percent, EBITDA is expected to grow 7.5 percent, and EBITDA margin at 21 percent, with a contraction of 70 bps. EPS is expected to decline by 68 bps,” it said.
While this quarter is certainly disappointing, the brokerage firm believes the setback is temporary, because the margin pressure on account of raw material prices will dissipate in the coming quarters, and secondly the drivers for recovery are in place.
Motilal Oswal expects financials to drive Q3 earnings, with corporate banks leading from the front. PSU Banks are also likely to deliver a healthy performance, aided by treasury marked-to-market gains and improving asset quality trends.
Capital Goods will have another healthy quarter and IT is likely to post the fourth straight quarter of double-digit profit growth. NBFC might face a significant deceleration in profit growth but still post a respectable double-digit number, it said.
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