Nifty cos all set to scorch Q3 charts

Metals, auto, realty and cement may lead the profit charge, but telecom, IT and banks may fall behind May Report 27% Rise In Earnings

 MARUTI Suzuki, Tata Motors, Hindalco and Sterlite may lead a 27% earnings growth for the Nifty 50 companies in the December quarter, as consumers lapped up their products with cheap financing, thanks to record-low interest rates and government stimulus. But telecom, software and banks will lag.

    The aggregate revenue of these companies is likely to jump 26%, an estimate of Nifty 50 companies by ETIG shows. This will be the first quarter of the current fiscal when all the three major finance ratios — net revenue, operating profit and net profit — might grow at almost a similar pace (see table). 
    While there is an element of lower base effect, especially for prices, there has been a strong volume growth in some sectors such as automobiles, cement and metals that witnessed strong demand for their products in the quarter. While metal companies like Tata Steel and Steel Authority of India have recorded strong sales volume growth of 20-25%, auto companies such as Maruti Suzuki saw its sales jumping by a whopping 49% in the December quarter. 
    The overall impact of lower commodity prices on Indian companies appears to be marginally positive. As a result, the aggregate operating profit margin of Nifty 50 companies expanded only by 40 basis points sequentially to 23.1%. However, the good news is that operating margin of corporate India is nearing its normal level (see chart). 
    Unlike previous quarters, manufacturing sector is likely to outperform services in the last quarter. Even the recent trend in the Index of Industrial Production (IIP) confirms that. However, the two main pillars of the services sector, technology and telecom, are expected to post relatively poor results. While technology companies could not raise prices for services, telecom got into a bitter price war. Poor credit offtake may put banks in slow lane 
EVEN the banking sector is unlikely to post good results, thanks to lower growth in credit offtake. And this is one of the few factors that might hinder the pace of growth in the coming quarters. 
    The 11% loan growth in December 2009 is one of the lowest in the decade. Though there is no latest data, experts are of the opinion that credit growth in consumer segment is much stronger than corporate segment. The easy availability of finances through ECB (external commercial borrowing), institutional share sales are slowing demand for loans from banks. At the same time, easy availability of bank loans to Indian consumers is driving the credit growth. Our estimates also show that sectors such as auto, real estate, cement and metal, catering directly to end-consumers, have performed better. At the same time, capital goods, an important sector that reflects corporate investment, is still facing some problem in getting orders. 
    Overall, India Inc is going to report spectacular growth numbers for December 2009 quarter. But, like any other quarter, there are some sectors that will outperform, while some may lag. Read on to find out how different sectors are likely to do in December 2009 quarter.