Hindalco Industries Ltd. (HNDL) and Bharti Airtel Ltd. (BHARTI) are poised to lead the first decline in quarterly earnings in three years for companies on India’s benchmark stock index after the economy grew at the slowest pace in a decade.
Net incomes for 30 companies on the S&P BSE Sensex (SENSEX) may fall 0.8 percent from a year ago in the quarter ended March 31, according to estimates compiled by Bloomberg. That would be the first decrease in profits since a 1.8 percent drop in the three months ended June 2010, the data show.
Asia’s third-largest economy, facing the fastest inflation among major emerging nations, expanded at the weakest pace since 2003 in the year to March 31. The slowdown has depressed sales of goods from Toyota Motor Corp.’s cars to Holcim Ltd.’s cement, and contributed to a drop that has made the Sensex the worst performing Asian benchmark this year. Stocks may extend losses amid “dramatic” a slump in profit growth, BNP Paribas SA said in an April 10 note.
“The pressure on earnings is likely to continue for the next couple of quarters,” Aneesh Srivastava, who manages about $514 million as chief investment officer at IDBI Federal Life Insurance Co., said by phone from Mumbai yesterday. “Growth must revive for earnings to pick up. There was a sense at the end of the December quarter that things would improve but that hasn’t happened as the macro has only deteriorated.”
Profits increased a less-than-estimated 1.6 percent in the three months ended Dec. 31 as 43 percent of the Sensex members trailed analysts’ forecasts, compared with 40 percent in the previous two quarters, according to data compiled by Bloomberg. The $1.8 trillion economy grew 4.5 percent from a year ago in the final three months of 2012, the slowest pace in almost four years, government data show.
Infosys Ltd. (INFO), the second-biggest company on the Sensex by weighting, will announce results today, marking the start of the reporting season for the March quarter. India’s second-largest software exporter may report net income of 23 billion rupees ($422 million), compared with 23.2 billion rupees in the year- ago quarter, a median of 36 analysts’ estimates in a Bloomberg survey shows.
Producers of metals, automobiles and capital goods may contribute the most to the drop in earnings, ICICI Securities Ltd. wrote in an April 8 note. Aluminum maker Hindalco may say profit plunged 45 percent to 3.49 billion rupees, according to a median of 16 analysts’ estimates in the survey.
“Demand for metals has been sluggish, which has impacted prices and realization for metal companies,” Jayant Acharya, a director at JSW Steel Ltd. (JSTL), said in an interview in Mumbai. “Demand for consumer goods is down and the sentiment toward the economy is weak.”
Car sales in India fell 6.7 percent to 1.89 million units in the 12-month period ended March, the most since 2001, as high borrowing costs cooled demand, a manufacturers’ group said April 10. Capital-goods output, a gauge of company expenditure on machinery, has shrunk in 16 out of the 19 months through January, according to the latest data. Industrial production likely shrank 1.3 percent in February, according to a Bloomberg survey before data due today.
“Limited signs of improvement in capital expenditure spends and waning consumption in specific pockets is leading to not only poor expectations for the upcoming earnings season but also for the year ending in March 2014,” Ambit Capital Pvt. wrote in an April 8 note. “We have a downbeat view for most sectors going into fourth-quarter results.”
For the year that began April 1, Ambit cut its earnings estimates for the 90 companies it tracks by 3 percent, Saurabh Mukherjea, head of equities, said by e-mail.
Profit at Bharti Airtel, the nation’s largest mobile-phone company, may slide 24 percent from a year ago to 7.72 billion rupees, the Bloomberg survey shows. Hero MotoCorp Ltd. (HMCL), India’s biggest motorcycle maker, may say net income fell to 5.04 billion rupees from 6.04 billion rupees.
While the Reserve Bank of India pared interest rates on March 19 for a second time in 2013, it has said “persisting” inflation curbs the scope for further cuts. The next policy review is due on May 3. Inflation, as measured by the wholesale- price index, climbed to 6.84 percent in February from a year earlier. Data for March is due April 15.
“So far, rate cuts have been slow and we think sales growth in fiscal 2014 will continue to be weak,” Jyotivardhan Jaipuria, head of India research at Bank of America Corp., said in a note last week. “Analysts are, as in fiscal 2013, being too optimistic about a recovery in the economy on the back of a sustained fall in interest rates.”
Prime Minister Manmohan Singh’s government since September has allowed more overseas investment in retailing and aviation, cut fuel subsidies and set up a panel to speed up road, ports and power projects. Finance Minister Palaniappan Chidambaram has said policymakers are reviewing foreign ownership caps in almost two dozen sectors to revive growth, which slowed to 5 percent in the year ended March 31, according to government estimates.
The Sensex’s 4.6 percent decline this year has dragged its valuation to 12.5 times projected 12-month profits from a multiple of 13.5 times at the beginning of 2013. The MSCI Emerging Markets Index trades at 10.4 times.
“If we look at the entire market, earnings are going to be bad next quarter as well and it will at take at least two more quarters for the earnings to trough out,” Chandresh Nigam, head of investments at Axis Asset Management Co., with $2 billion in assets, said in an interview with Bloomberg TV India on April 8. “It will be difficult to make a pin-point call that this will be the worst quarter.”
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