The outbreak of COVID-19 caused severe disruption in economic activities and will be reflected in the numbers of India Inc. Barring some pharma and large banks, all sectors are likely to show signs of distress.
Indian corporates will in the coming days start declaring their March quarter earnings and market participants are expecting the period to be a disappointing one for most sectors.
The outbreak of coronavirus in the last month of the quarter severely disrupted economic activities and this will be reflected in the numbers of India Inc. Barring some pharma and large banks, all sectors are likely to show signs of distress.
Analysts say even though industrial activity fared well in January and February, the slowdown followed by the lockdown in March to curb the spread of the virus will impact Q4 earnings.
"We expect high double-digit year-on-year (YoY) decline in net income for several sectors like automobiles, construction materials, metals and mining and oil & gas. Healthy earnings growth is likely to come from only banks and pharmaceuticals," said Rusmik Oza, Executive Vice-President, Head of Fundamental Research, Kotak Securities.
Oza expects the universe of Kotak Institutional Equities to report a YoY decline of 14 percent in Q4FY20 net profit. Excluding BFSI the universe earnings were likely to degrow by 36 percent, he said.
"A few industries faced supply-side constraints from China in both February and March. The start of results season by banks and IT will be good but as other sectors start reporting numbers, the disappointment factor will go up," Oza said.
He added that optically, the earnings growth of BSE30 would look better than that of Nifty50, as downstream companies BPCL and Indian Oil and auto major Tata Motors were part of Nifty50 but not there in BSE30.
Experts are of the view that the 21-day lockdown is expected to hit the top-line by approximately 8.5-9 percent, which will also hit the bottom line. Companies having global exposure, especially to China and Europe, must have taken a bigger hit in that period.
Brokerage firm Dolat Capital Market said its Q4FY20 estimates project aggregate growth (excluding-BFSI) of 2.4 percent YoY for top line (126 companies, current market cap of $575 billion), 10.2 percent for operating level, and -5.7 percent for net earnings.
Besides, Dolat's aggregate estimates (excluding energy and BFSI) show top-line growth of 2.2 percent, 9.6 percent for operating level, and -6.8 percent for PAT, all YoY for 118 companies.
The agrochemicals sector, telecom and power utilities were likely to emerge as winners in the top-line, Dolat said.
Indian corporates will in the coming days start declaring their March quarter earnings and market participants are expecting the period to be a disappointing one for most sectors.
The outbreak of coronavirus in the last month of the quarter severely disrupted economic activities and this will be reflected in the numbers of India Inc. Barring some pharma and large banks, all sectors are likely to show signs of distress.
Analysts say even though industrial activity fared well in January and February, the slowdown followed by the lockdown in March to curb the spread of the virus will impact Q4 earnings.
"We expect high double-digit year-on-year (YoY) decline in net income for several sectors like automobiles, construction materials, metals and mining and oil & gas. Healthy earnings growth is likely to come from only banks and pharmaceuticals," said Rusmik Oza, Executive Vice-President, Head of Fundamental Research, Kotak Securities.
Oza expects the universe of Kotak Institutional Equities to report a YoY decline of 14 percent in Q4FY20 net profit. Excluding BFSI the universe earnings were likely to degrow by 36 percent, he said.
"A few industries faced supply-side constraints from China in both February and March. The start of results season by banks and IT will be good but as other sectors start reporting numbers, the disappointment factor will go up," Oza said.
He added that optically, the earnings growth of BSE30 would look better than that of Nifty50, as downstream companies BPCL and Indian Oil and auto major Tata Motors were part of Nifty50 but not there in BSE30.
Experts are of the view that the 21-day lockdown is expected to hit the top-line by approximately 8.5-9 percent, which will also hit the bottom line. Companies having global exposure, especially to China and Europe, must have taken a bigger hit in that period.
Brokerage firm Dolat Capital Market said its Q4FY20 estimates project aggregate growth (excluding-BFSI) of 2.4 percent YoY for top line (126 companies, current market cap of $575 billion), 10.2 percent for operating level, and -5.7 percent for net earnings.
Besides, Dolat's aggregate estimates (excluding energy and BFSI) show top-line growth of 2.2 percent, 9.6 percent for operating level, and -6.8 percent for PAT, all YoY for 118 companies.
The agrochemicals sector, telecom and power utilities were likely to emerge as winners in the top-line, Dolat said.
India's economy was on a bumpy track even before the outbreak of the pandemic but most brokerages and analysts were hopeful that the signs of growth would emerge from the second half of FY21. Now, those hopes are dashed and corporate earnings are likely to see a sustained fall throughout the current financial year.
"We do foresee FY21 as the washout year for corporates as the steep impact in terms of complete revenues/production loss will be amplified by fixed costs during this period, impacting earning," Pankaj Pandey, Head of Research at ICICI Securities said in an interview to Moneycontrol.
Given the already benign base and further decline in earnings during the current phase, the earnings recovery in FY22 would be sharp, he said.
"To encapsulate, market recovery could be 'V' shaped, economic recovery may be 'U' shaped," he said.
What about the market?
While the market may be factoring in disappointing numbers, the major threat is earnings downgrade, which will make valuations of stocks expensive.
Analysts underscore that the result season will lead to big earnings downgrades for FY21.
Oza of Kotak Securities said the Q4 earnings season will have a dual impact on companies’ future earnings. Firstly, the fall in Q4 earnings will pull down FY20 numbers and secondly, the lockdown and uncertainties surrounding resumption of economic activity will hit FY21 earnings. Hence, the lower base effect of FY20 and a sharp cut in FY21 estimates will lead to disappointing numbers.
"Valuations will go to the extent of earnings cut and even at beaten-down prices, many companies will look expensive on the revised estimates. This disappointment in future estimates will impact the market negatively in the coming months," Oza said.
More than the numbers, investors will closely watch the outlook on the road ahead.
"The market will look more into the commentary of current status and what levels of operation they will be in the June quarter. Q4 results will be of impact only in financials as the provisions will be important to look at," said Sameer Kalra, Founder, Target Investing.
Earnings may trigger the sector and stock-specific movement in the market, but the overall trend will depend on COVID-19 cases and what steps the government takes to support the economy. COVID-19 is the disease caused by the coronavirus.
Experts say that the biggest point of worry for the market is the economic slowdown and if that scenario changes, the market will see traction.
Recovery is likely to be seen more from the September quarter, provided the COVID-19 issue comes under control within the next two-three months.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Time to show-off your poker skills and win Rs.25 lakhs with no investment. Register Now!
