Numbers to watch this week: Nestle results; ECB rate, external borrowings
Premium- The Q4 earnings season continues, with one top life insurer, two lenders, and one FMCG major set to announce their financial statements this week
At the start of every week, Mint’s Plain Facts section features five key data releases to watch out for. The monetary policy announcement by the European Central Bank (ECB) will be keenly watched at a time when coronavirus infections are rising fast in that continent. The key earnings announcements this week include those of Nestlé India Ltd, ICICI Bank Ltd, Mahindra & Mahindra Financial Services Ltd, and ICICI Prudential Life Insurance Co. Ltd. Here are the five big numbers to track over the coming week.
1. FMCG outlook
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Nestlé India, one of India’s leading firms in the fast-moving consumer goods (FMCG) sector, announces its quarterly results on Tuesday. The sector performed better than others even in the June-ended quarter last year, when most economic activities were hit hard. Nestlé India reported positive sales growth for all quarters last year.
Most analysts predict strong revenue growth for FMCG companies. One reason is the lower base because of the covid-19 pandemic-related curbs of March 2020. As Indians have started using discretionary products again, pent-up consumption has played its part. However, a rise in the costs of raw material such as crude oil and milk may affect profit margins.
Brokerage ICICI Direct pegs a 10.8% revenue growth for Nestlé, led by the noodles segment and its rural distribution. When the company puts out its results, investors will keep an eye on what it has to say on the business impact of fresh covid-19 restrictions.
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2. ICICI Prudential’s growth
ICICI Prudential Life Insurance is another key firm that will announce its earnings this week. The pandemic has disrupted the insurer’s goal to double its value of new business (VNB) between 2018-19 and 2022-23. The data available so far shows that VNB has declined in the past fiscal. Full-year results will give further clarity on the progress. Meanwhile, the company insists it will meet its goal.
The second wave of covid-19 has again put insurance firms under pressure as claims have risen. ICICI Prudential improved its market share significantly in February, showing a 6% year-on-year growth in retail on an annualized premium equivalent basis. It was the firm’s first monthly growth since the covid outbreak. What India’s second-largest private insurer says about its goals for the coming year on Monday’s earnings call will give an indication of the sector’s growth outlook.
3. Lenders’ earnings
Two major lenders come out with their financial results for the January-March quarter this week: Mahindra & Mahindra (M&M) Financial Services on Friday and ICICI Bank on Saturday.
Business in the sector has revived since the early stages of the pandemic and credit growth has inched up. Analysts have pegged high single-digit loan growth for large NBFCs such as M&M. Early data from some banks, too, shows business is now closer to pre-pandemic levels. However, any growth will be in large part because of pent-up demand and the base effect. It means investors will need to watch out for what the lenders have to say on the sustainability of this growth at a time when the covid curve’s been moving up. Markets don’t seem very optimistic: both ICICI Bank and M&MFS have been trading below early March levels.
4. External borrowings
External commercial borrowings can ease financing constraints for firms in cash-strapped emerging markets such as India in good times. In bad times, they pose systemic risks and can exacerbate outflows from emerging markets.
The low risk appetite of Indian firms over the past year due to the pandemic has meant that few of them have borrowed abroad despite ultra-low interest rates. Data on borrowings made in March, to be released by the Reserve Bank of India (RBI) over the weekend, will tell us whether or not the trend has continued at a time the pandemic has worsened.
However, trends in the forex market would make low external borrowings a blessing in disguise at the moment. The strengthening of the dollar means the so-called carry trades are now unwinding, putting pressure on emerging market currencies. This would make it harder for indebted firms and governments to repay loans given in dollar terms.
5. ECB policy rate
List most central banks across the world, the European Central Bank (ECB), too, has kept monetary policy loose to revive growth. In March last year, the bank launched a pandemic emergency purchase programme, while keeping interest rates at zero.
The ECB has expanded that programme and that may have contributed to both a rise in asset price and retail inflation. However, the ECB is unlikely to reverse course yet, especially as the continent is in the grip of a strong third wave of infections.
Until inflation reaches the desired 2% mark, the bank may not alter its stance, ECB officials indicated earlier. ECB president Christine Lagarde has maintained that the European economy is still “on the crutches", requiring policy support.
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