As Indian firms prepare to post their earnings for the June quarter, analysts warn most reports will be weak but expect an improvement in the near future as government stimulus packages take effect.
For the three months to the end of June, the 30 stocks that comprise Mumbai’s benchmark Sensex index could see an annual fall in sales of four to eight per cent and lower profits of between nine and 13 per cent.
Firms in the country’s flagship software sector could see subdued growth on weak revenues despite an easing of pricing pressures for most of their US-based clients as the value of the rupee has fallen.
And Infosys Technologies, the Bangalore-based pioneer of the industry, kicks-off the earnings season on Friday.
“Incremental business decisions continue to be slow,” local brokerage Motilal Oswal Securities said in its earnings forecast report.
And Anurag Purohit, an analyst with Religare Hichens Harrison brokerage, said volumes will be flat against the March-end quarter.
In March, both Infosys and rival Wipro had acknowledged that their revenues were under pressure.
But excluding IT, the worst could be over for several Indian firms, market watchers say, as the country’s economy shows early signs of a revival, led by local demand.
India’s exports and industrial output had contracted sharply between October and March, as it reeled from the full impact of the global financial crisis.
“A bad set of numbers is expected (for the June-end quarter), but companies are shifting track towards recovery,” said Hitesh Agrawal, head of research with Angel Broking.
Agrawal said Indian firms could begin to show improved earnings data in successive quarters, as the government’s stimulus packages take effect.
“This takes about nine to 12 months to kick in,” he said.
Between December and March India introduced three stimulus packages to boost the flagging economy as it was battered by the global slump.
“We are seeing some signs of a pick-up in demand,” said Siddhartha Sanyal, economist with Edelweiss Securities, led by manufacturing growth.
He said services and export-led firms could take longer to recover.
In the three months to June, Indian stock prices jumped nearly 50 per cent -- its best performance in 17 years -- in expectation of greater economic reform after the Congress party surged to power in May general elections.
That made India a top-performing emerging market in the last quarter.
“From a quarter of ‘fading darkness´, we move on to a quarter of ‘new hope´,” the Motilal Oswal report says, optimistic over the formation of a stable government and possible upturn in the economy.
Economists have called Congress’s resounding win a “game changer” for the economy as it raised hopes of political stability for the next five years and the introduction of reforms that had been blocked by the Left.
On Wednesday, the Sensex closed at 13,769.15 points, up nearly 43 per cent for the year, led by overseas fund inflows of 5.23 billion dollars.
India’s trade minister Anand Sharma on Wednesday said output in the cement and steel sectors had grown by 13 percent each in June, from a year earlier.
The country’s automobile sector is also showing some signs of a recovery, as sales for firms like Maruti Suzuki India, Tata Motors and Honda have improved since the turn of the year on the back of a low interest rate regime.
Meanwhile the central Reserve Bank of India will push commercial banks to lower their lending rates, to spur growth.
The RBI has slashed key short-term interest rates six times since October, with the repo -- the rate at which it lends to commercial banks -- being cut by 425 basis points.
And the finance ministry, in its annual Economic Survey presented to parliament last week, predicted that GDP growth could exceed 7.0 per cent this year.
India grew by 6.7 per cent in the year ended March 31 -- the slowest rate since 2003 and down from nine per cent a year earlier.