India Inc earnings disappoint, analysts warn of gloomy festive season
Highlights
- India's biggest lenders and automakers have all sounded warning bells over the slower growth in demand and consumption
- The festive season, which starts in September and runs through the end of the year, is the biggest sales season for companies
(Representative image)BENGALURU: India Inc has turned in its most disappointing quarterly numbers in at least three years and analysts warn hopes for any festive season cheer are likely to be dashed by a slowing economy.
More than 60% of 125 firms that have reported so far, and are tracked by analysts, missed profit forecasts for the June quarter, the most since at least 2016, Refinitiv data shows.
India's biggest lenders and automakers have all sounded warning bells over the slower growth in demand and consumption.
"It's going to be a gloomy Diwali. Things are not going to change immediately in the next two or three months," said Umesh Mehta, head of research at Samco Securities.
The festive season, which starts in September and runs through the end of the year, is the biggest sales season for companies. It typically peaks around Diwali, or the festival of lights, in October.
But this time, the outlook for the period is subdued after India's economy grew at the slowest pace in more than four years in the January-March quarter. An erratic monsoon, high rates of unemployment and a liquidity crisis in the shadow banking sector have added to the uncertainty.
"Consumers are currently postponing their purchases because of the general slowdown," said Neeraj Dewan, director, Quantum Securities.
Consumer goods giant Hindustan Unilever has warned demand will "remain subdued given macroeconomic conditions".
The benchmark Nifty index has dropped more than 10% since hitting an all-time high in early June and is the fourth-worst performer among its major Asian peers so far this year.
"The growth engine is slowing down, which is why we are seeing a sell-off," Samco's Mehta said.
Automakers have been among the worst hit by the slump in demand, with monthly auto sales in India down 17-20% since April. Preliminary data shows overall car sales in the country may have dropped as much as 30% in July.
Tata Motors, India's top automaker by revenue, posted a bigger-than-expected loss for the June quarter. Rival Maruti Suzuki, which managed to top estimates aided by cost cuts, saw an 18% drop in sales.
Gopal Mahadevan, finance head at truck maker Ashok Leyland , has said the lower auto sales have "more to do with the general economic condition" and not a demand problem.
Among the few bright spots for the quarter was Johnny Walker and Smirnoff maker Diageo, which reported an 8% rise in sales in India, led by strong demand for scotch. Its subsidiary, United Spirits, posted a near 10% rise in sales.
"The lipstick effect, which indicates consumers spend more on low-ticket luxury and instant gratification items during a crisis, could be at play here," said Gnanasundaram Saminathan, a research analyst at Spark Capital Advisors.
More than 60% of 125 firms that have reported so far, and are tracked by analysts, missed profit forecasts for the June quarter, the most since at least 2016, Refinitiv data shows.
How a shadow banking crisis sent the auto sector into a tailspin
Across India dealerships are being pushed out of business and the auto sector is going through its biggest slump in nearly two decades. Passenger vehicle sales fell for eight straight months until June, and in May sales dropped 20.55% - the sharpest recorded fall in 18 years.
India's biggest lenders and automakers have all sounded warning bells over the slower growth in demand and consumption.
"It's going to be a gloomy Diwali. Things are not going to change immediately in the next two or three months," said Umesh Mehta, head of research at Samco Securities.
The festive season, which starts in September and runs through the end of the year, is the biggest sales season for companies. It typically peaks around Diwali, or the festival of lights, in October.
But this time, the outlook for the period is subdued after India's economy grew at the slowest pace in more than four years in the January-March quarter. An erratic monsoon, high rates of unemployment and a liquidity crisis in the shadow banking sector have added to the uncertainty.
"Consumers are currently postponing their purchases because of the general slowdown," said Neeraj Dewan, director, Quantum Securities.
Consumer goods giant Hindustan Unilever has warned demand will "remain subdued given macroeconomic conditions".
The benchmark Nifty index has dropped more than 10% since hitting an all-time high in early June and is the fourth-worst performer among its major Asian peers so far this year.
"The growth engine is slowing down, which is why we are seeing a sell-off," Samco's Mehta said.
Automakers have been among the worst hit by the slump in demand, with monthly auto sales in India down 17-20% since April. Preliminary data shows overall car sales in the country may have dropped as much as 30% in July.
Auto majors in slow lane; July sales see double-digit slump
Maruti Suzuki, Hyundai and three other auto majors reported a double-digit decline in sales in July as consumer sentiment remained subdued. Market leader Maruti Suzuki India domestic sales were down 36.3% at 98,210 units last month. The mini segment, comprising Alto and old WagonR, saw a massive slide of 69.3% while the utility vehicle sales slumped to 38.1%.
Tata Motors, India's top automaker by revenue, posted a bigger-than-expected loss for the June quarter. Rival Maruti Suzuki, which managed to top estimates aided by cost cuts, saw an 18% drop in sales.
Gopal Mahadevan, finance head at truck maker Ashok Leyland , has said the lower auto sales have "more to do with the general economic condition" and not a demand problem.
Among the few bright spots for the quarter was Johnny Walker and Smirnoff maker Diageo, which reported an 8% rise in sales in India, led by strong demand for scotch. Its subsidiary, United Spirits, posted a near 10% rise in sales.
"The lipstick effect, which indicates consumers spend more on low-ticket luxury and instant gratification items during a crisis, could be at play here," said Gnanasundaram Saminathan, a research analyst at Spark Capital Advisors.
more from times of india Business
LATEST VIDEOS
All Comments ()+^ Back to Top
Refrain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks, name calling or inciting hatred against any community. Help us delete comments that do not follow these guidelines by marking them offensive. Let's work together to keep the conversation civil.
HIDE