Sterlite Industries (India) Ltd. and Maruti Suzuki India Ltd. are poised to lead companies in reporting the weakest sales growth in about four years as a slowing economy cools demand for goods from cars to appliances.
Revenue for 30 companies on the S&P BSE Sensex may expand 3.8 percent from a year earlier in the quarter ended June, the least in 16 quarters, according to Deutsche Bank AG. Bank of America Corp. forecasts sales growth of 3.9 percent.
Sales at Maruti, India’s biggest automaker, fell in four of the six months through June and steel demand in the world’s third-largest user of the alloy rose in the April-June period at the slowest pace in at least five years, official data show. A slide in the rupee to a record will curb the central bank’s ability to pare interest rates to revive an economy that grew less than 5 percent for a second straight quarter.
“When you’ve got an economy which is growing at 5 percent to 6 percent it is very difficult for companies to deliver strong earnings growth,” Vetri Subramaniam, who oversees $2.3 billion in assets as chief investment officer at Religare Invesco Asset Management Co. in Mumbai, said in a phone interview yesterday. “Revenue growth in aggregate is showing signs of deceleration continuously and that remains a cause of concern.”
Morgan Stanley estimates sales for the 111 companies under its coverage, excluding state-run fuel retailers, likely grew at 3 percent in the June quarter, a record low, analysts led by Ridham Desai wrote in a report dated July 4. CLSA Asia-Pacific Markets forecasts sales growth of the 106 companies it tracks to slow to 5 percent from 19 percent in the year-ago period, the brokerage said in a report the same day.
Billionaire Anil Agarwal-controlled Sterlite, India’s biggest copper and zinc producer, may say sales slumped 35 percent to 68.8 billion rupees ($1.15 billion), according to the median estimate of 18 analysts in a Bloomberg survey. Revenue at Maruti Suzuki may drop 2.3 percent to 102.9 billion rupees in the June quarter, according to the median estimate of 29 analysts in a Bloomberg News survey. Maruti’s shares slumped 3.8 percent to 1,447.95 rupees, the most since Feb. 28.
Group sales at Tata Steel Ltd. may drop 3 percent to 325.7 billion rupees and Bharat Heavy Electricals Ltd., the country’s biggest power-equipment maker, may report revenue declined 4.2 percent to 79.8 billion rupees, according to the survey.
Shares of Sterlite, Bharat Heavy and Tata Steel are among the worst performers on the Sensex this year.
Infosys Ltd. had the sharpest gain in six months after first-quarter profit climbed and the software exporter’s sales forecast in dollar terms beat analyst estimates. Infosys is the first Sensex company to announce earnings. The gauge rose 1.4 percent to 19,958.47, the highest close since May 30.
Asia’s third-largest economy grew 5 percent in the year ended March, the least in a decade. Factory output unexpectedly contracted in May, adding pressure for more government steps to revive the economy. Production fell 1.6 percent from a year ago after revised 1.9 percent climb in April, official data showed after market hours today. Capital-goods production, a measure of company expenditure on machinery, has shrunk in eight out of 12 months through April, according to the latest available data.
Lack of “capital expenditure is the biggest area of concern, because for the economy to pick up you need a pick-up in investment,” Jyoti Vaswani, chief investment officer at Aviva Life Insurance Co., said in an interview. “The initiatives the government has been taking off late -- the reforms in power and energy sectors and clearing roadblocks for environment clearances for projects -- should lead to investments going forward.”
Prime Minister Manmohan Singh and Finance Minister Palaniappan Chidambaram have changed policies since September to spur growth and avert a downgrade of the nation’s credit rating. Chidambaram is in the U.S. this week, extending efforts to woo investment and help fund India’s record current-account deficit. The nation is rated at the lowest investment grade by Fitch Ratings, Standard & Poor’s and Moody’s Investors Service.
While global funds pulled $1.8 billion from local stocks in June, the most since August 2011, this year’s net inflows of $13.5 billion is the highest in Asia after Japan, data compiled by Bloomberg show. Foreigners have been net sellers of Indian equities in just two of the past 13 years, according to data going back to 2000.
“While India’s fundamentals are far from perfect and the policy remains challenging, these are known factors,” Clive McDonnell, head of emerging-market equity strategist for Standard Chartered Plc., said in an interview to Bloomberg TV India yesterday. “The government is trying to push the envelope on reforms. We are overweight on India within the emerging markets universe.”
India’s budget and trade shortfalls have hurt the nation’s currency, which slid to a record 61.2125 per dollar on July 8. The rupee has depreciated 7.9 percent in 2013, emerging Asia’s worst performance, making imports costlier and threatening to spur gains in consumer prices, which have stayed close to 10 percent for more than a year. Reserve Bank of India Governor Duvvuri Subbarao left interest rates unchanged in June for the first time in four reviews, citing inflation risks.
“We don’t see the RBI rushing in to cut rates given the other issues it has to grapple with, like the pressure on the rupee and the current-account deficit,” Religare’s Subramaniam said. “We are not expecting a cut” in the policy review on July 30, he said.
Combined profits for the 30 companies in the Sensex may increase 5.8 percent in the three months ended June after two quarters of “near-zero” growth, Bank of America analysts Jyotivardhan Jaipuria and Anand Kumar wrote in a July 3 report. Still, there’s a risk of “disappointment in earnings” because of a weak currency, they wrote. Morgan Stanley estimates net income to shrink 1 percent in the period.