March quarter estimates show earnings growth losing steam

March quarter estimates show earnings growth losing steam

 

Mumbai, Apr 9: The trend of steady improvement in corporate earnings growth seems to be losing steam, with the combined net profit of India’s top 50 companies, which are part of the NSE Nifty50 index, estimated to grow by 10.9 per cent year-on-year (YoY) during the January-March 2018 quarter, down from the 11.5 per cent YoY growth clocked in the third quarter and 40.5 per cent growth during the year-ago quarter.
The combined net sales of these 50 index companies are estimated to grow by 12.1 per cent during the fourth quarter (Q4) of FY18, again lower than the 13.8 per cent YoY growth during the quarter ended December 2017 and 15 per cent growth witnessed during Q4FY17.
With this, India’s top listed companies are estimated to report 8.1 per cent YoY growth in their combined net profit for FY18, the lowest in the last three years. The combined earnings for the Nifty50 companies were up 13.2 per cent during FY17. However, their top line growth, at 12.2 per cent in FY18, is expected to be the best since FY14, when index companies’ combined net sales were up 13 per cent on a YoY basis.
Excluding financials, energy, metal, and mining companies, the combined net profit of the rest of the Nifty firms is expected to grow by 4.2 per cent YoY for Q4FY18, slightly up from the 4 per cent growth clocked in the December quarter and 0.5 per cent increase seen in the year-ago period. The sample companies’ combined net sales are expected to grow by 10.7 per cent YoY, better than the December quarter’s 9.6 per cent and the March 2017 quarter’s 3.2 per cent YoY growth.
The analysis is based on January-March 2018 quarter (Q4FY18) earnings estimates by equity brokerages, including Kotak Institutional Equities (KIE), Edelweiss Securities, Emkay Global, and Elara Capital. For banks and non-banking financial companies (NBFCs), net sales reflect their gross revenues net of interest expenses, while for others, it is total income from sales & goods and services (net of indirect taxes).
Analysts attribute the slowdown in the pace of earnings to the emergence of margin pressure due to higher commodity prices, continued poor show by export-oriented sectors such as information technology (IT) services and pharmaceuticals, and also the decline in private sector investments hitting the growth of capital goods sector.
“The positive impact of demand recovery and a favourable base effect is seen fading in Q4FY18 despite continued strength in demand conditions.