The third-quarter earnings season kicks in on Thursday, when Infosys announces its financial results for October-December.
While rising interest rates and input costs may have started to hurt Indian companies beginning December, brokerage houses expect companies figuring in the Bombay Stock Exchange benchmark Sensex 30 list to clock a net profit growth in excess of 20%, and a revenue growth of around 15% for the quarter.
“The performance in Q3 FY11 is expected to remain on track even as earnings growth appears to be moderating year-on-year on a higher base,” said an IDFC Securities report that projects a strong revenue growth for non-commodities. “We expect Sensex earnings to rise 21% year-on-year.”
The report projects that earnings could be under pressure from here on.
“Macroeconomic headwinds pose an earnings threat hereon. While higher commodity prices are largely built in, rising systemic interest rates will exert further pressure on earnings,” the report said, adding margins could shrink.
Similarly, Motilal Oswal Financial Services has projected a profit growth of 24% for Sensex companies and said export-oriented sectors are expected to do better.
“If the current trend of rising commodity prices persists, the PAT mix will tilt in favor of global cyclicals rather than domestic plays,” a report by the company said. “Expect sectors dependent on domestic markets to be affected by headwinds.”
Markets are likely to react positively when the earnings season kicks as brokerages feel the IT sector will come out with good results on the back of a rising demand in the US.
“We expect tier-1 IT services companies to grow 5-6% quarter-on-quarter. We are positive on the sector and expect another round of earnings upgrades post the results,” IDFC said.