Mumbai, July 13: Companies are expected to report higher profits and improved margins in the first quarter, signalling that they may be on the road to recovery.
A sign of the things to come was evident last week in the form of Infosys’s better-than-expected results and May industrial output rising to a 19-month high of 4.7 per cent.
Good numbers from India Inc are expected to bring some vigour back to the stock markets, which slipped last week as the government’s rail and Union budgets failed to live up to expectations.
IndusInd Bank and Infosys, which kicked off the results season last week, did not disappoint investors. Analysts now believe the forthcoming numbers will continue to bring cheer to investors.
Jyotivardhan Jaipuria, head of India research at Bank of America-Merrill Lynch, said, “The good news is that our forecast headline profit growth of 18.3 per cent for the first quarter is consistent with our view that corporate earnings are on the road to recovery. Second good news is we expect recovery to be more broad-based with only two of the 30 Sensex companies expected to show a decline in profits. Also, margins are expected to recover.”
The brokerage expects margins for the Sensex companies to improve 35 basis points over the corresponding period last year, led by sectors such as pharmaceuticals and metals.
According to analysts, the spotlight will be on sectors focused on the domestic market, which are expected to report robust numbers. Industries seen to do well include automobiles, metals, pharmaceuticals, telecom and private banks.
The auto sector, which has been hit by poor demand, looks to benefit from the excise duty relief extended till December 3. The move has already jacked up volume growth for a few companies, and industry circles expect growth to accelerate in the second half of this fiscal.
“The first quarter witnessed early signs of volume revival across segments. Volume trajectory across companies in the first quarter was better than the fourth quarter of 2013-14. Maruti, Eicher Motors, Mahindra & Mahindra and Hero MotoCorp are likely to witness sequential margin expansion,” a note from Edelweiss Securities said.
Besides, the asset quality of PSU banks is unlikely to show any major deterioration because of higher recoveries and sale of NPAs to asset reconstruction companies.