In all the market turbulence of January and the hype around Central bank meetings, this earnings season got sort of smothered. Now that the more obvious triggers have played out, one has a little more time to reflect on how earnings shaped up this quarter. While it wasn't a bad quarter, it wasn't the best we have seen in recent times. The aggregated growth numbers for all companies may not paint a very gloomy picture but a closer look does reveal a few warts.
Other income played a fairly important role this time. My guess, as I haven't been able to collate all the numbers yet, is that earnings growth stripped of other income will be close to the 15 per cent mark. While that's not terrible, it isn't spectacular either. But that's all a jumbled mass of statistics which hides more than it reveals. What is a bit more disappointing is that there were hardly any positive surprises, the steroid that is necessary to support expanding valuations. I don't think there will be more than one or two earnings upgrades for the Sensex stocks, if that. Only the odd L&T etc. On the other hand there could be a few downgrades for stocks like Hindalco and Reliance energy. Overall, for the large cap universe there may not be significant revisions, upward or downward but for midcaps there have been many more disappointments in this quarter compared to the last. Liquid names like PTC, IDBI, Voltas, Ispat, JSW steel, India cement, Dena bank and Escorts all fell short of expectations.There were many more. This is worrying.
The results aren't bad enough to start panicking but one needs to be very watchful.Topline growth is moderating and margins are showing some strain under raw material and cost pressures. In a difficult global environment, if earnings start getting downgraded in 2008, that will raise the risk of stocks getting derated. The external risks, of global slowdown and liquidity withdrawals, while very real are less intrinsic to core stock prices over a longer time frame. If indeed India has to outperform in a sluggish equity environment , earnings will have to show more sparkle. Having been spoilt for the last three years with continuous earnings surprises and upgrades, the market may have lost it's tolerance for lacklustre numbers.
Udayan Mukherjee is the Executive Editor, CNBC-TV18.