India’s top companies could see an over 45% jump in aggregate profit for the three months ending December thanks, in part, to an economy on the mend, but mostly due to a ‘low-base effect’.
The 30 firms, which constitute the benchmark Sensex of the Bombay Stock Exchange (BSE), could post a 25-30% increase in standalone net profit from a year ago period, according to an ETIG study.
The key to an improved show would be the low-base effect, the gains in December would be spectacular compared to the poor numbers a year ago. The October-December period last year, the quarter that followed the collapse of US investment bank Lehman Brothers, was a disaster for most BSE-500 companies (excluding oil marketers and banks).
Their aggregate net profit (adjusted for extraordinary items) had shrunk more than a quarter to Rs 35,618 crore from a year ago. Lehman’s bankruptcy sowed a panic that pushed financial markets to the brink and felled global economic activity from industrial production to foreign trade.
Indian companies, too, were caught in that downturn, but have since made a comeback with a revival in demand, helped by the government’s stimulus package, moderation in input prices and softening credit costs.
The same set of 450-odd companies posted a total net profit of Rs 51,777 crore in the September quarter, after successive quarterly earnings growth. If these companies were to maintain the same profit levels in the current quarter, their net profit would jump 45%, as per the study.
Government data on industrial performance, as measured by the index of industrial production (IIP), which rose 10.3% in October from a year earlier, indicates that the expectations from this quarter are not misplaced. Noting the IIP numbers and exports, which grew 18.2% in November, finance minister Pranab Mukherjee last week said the economy may “resume the spectacular growth rate of 9% experienced during the pre-downturn period” in the next 2-3 years.
“Going by the GDP and IIP numbers, Indian companies, in general, should perform well and results should be in line or exceed expectations,” said Jagannadham Thunuguntla, equity head at Delhi-based broking firm SMC Capitals.
Advance tax collections, another pointer to the approaching results season, have also risen over 22% in the October-December quarter on a sharp jump in payments from automobiles, consumer goods and metal firms. Domestic bourses, too, seemed to have taken note of a possible improved show. Last Thursday, the Sensex rose 129 points to close at 17,360, just short of the one-year high recorded in mid-October.
“The stock prices of top 200 companies have already factored in the expected result performance in Q309. So, nothing big is expected out of them unless there is a big surprise in their results,” said DD Sharma, retail research vice-president, Anand Rathi Financial Services. But mid-cap companies, which closely track the results season, might react to the results, he added.
The December quarter could also see revenues turning around to touch double digits, though their growth would be modest compared to the improved bottomline. “We expect industries such as metals, automobiles, infrastructure, real estate and pharmaceuticals to report a year-on-year topline growth,” said DR Dogra, managing director & CEO of credit rating agency Credit Analysis & Research (CARE).
Source : The Economic Times