Earnings of top companies remained subdued for yet another quarter. With most companies reporting their quarterly numbers, a clearer trend emerges that weak domestic demand is a key factor hurting most companies even as global slowdown is helping companies with a drop in commodity prices.
Sales and profit of Sensex stocks declined by between 5.3 percent and 5.5 percent during the quarter. This is the third consecutive quarter of top line and bottom line contraction, which is more prolonged than the Lehman crises, said Edelweiss Securities.
"Even as the lagged impact of declining commodity prices benefitted some sectors -- FMCG and automobiles -- endowed with pricing power, the overall operating profit margin declined for Sensex and Nifty companies by 218 basis points and 149 basis points respectively,’’ said Dhananjay Sinha, head of research at Emkay Global.
Commodities and exports, which make up half their profit, remain primary pain points with their profits falling for the fourth consecutive quarter, according to Edelweiss Securities. Coal India, HDFC and ONGC profit earnings were lower than its estimates by 4-5 per cent, it said.
Profit after tax growth of commodities companies show that net profit declined by about 30 per cent, while automobile exports fell by more than 50 per cent. In the category of domestic investments, net profit for companies in engineering and capital goods companies declined 20 percent, while cement and agriculture and fertilizers-related companies showed a dip of 7.2 and 8.3 percent respectively.
In the domestic consumption sector, profit by automobile companies rose 22 per cent, while that by retail sector companies fell by a similar margin, and hospitality by a much larger 30 per cent.
Likewise, private sector banks, insurance companies and non-bank finance companies profit grew between 13 and 18 percent, while that by public sector banks rose by a paltry 3.2 percent.
Analysts predict an impact of muted earnings on stocks prices. There’s been no meaningful growth in Sensex EPS growth over the past six quarters, Saurabh Mukherjea, the chief executive officer for institutional equities at Ambit Capital, said in a newspaper interview. The bulk of Nifty will face earnings pressure over the next six months, he said, adding it didn’t make sense to load up to Nifty constituents.
Emkay Global saw robust sales growth coming from power, pharmaceuticals, IT, media and entertainment. Other sectors such as metals, retail and capital goods showed higher vulnerability, it said.
