The December quarter earnings season will likely be a quiet one with India Inc reporting a modest growth. In fact, excluding banks and energy, profits will likely contract for the BSE 30 pack. Aggregate earnings will also be pulled down by the weaker year-on-year revenues and profits of metals producers.
Banks will continue their strong run as demand for credit remains high, yields rise and provisions fall. Weak volumes of passenger cars and two-wheelers will hurt sequential revenue growth of automobile manufacturers, but margins will improve.
Going by the commentary from managements, volumes rise at makers of consumer staples have been modest and would diminish the gains from better gross margins. The IT pack, too, is expected to report very modest revenue growth.
For the BSE 30 companies, net profits are estimated to go up by about 9% year-on-year and by 6% quarter-on-quarter in the third quarter of FY23, according to Kotak Institutional Equities (KIE). For the 50 Nifty companies, earnings are estimated to grow 11% y-o-y and 9% sequentially.
For the past couple of quarters, banks have been the big drivers of earnings growth thanks to lower provisioning and rising loan growth; better return on equity has attracted investor to these stocks. However, top-tier lenders could see loan growth tapering off and the costs of funds rising sharply as deposit rates rise. That would cap margins.
Demand for both consumer staples and durables has been lukewarm post the festive season in the wake of limited hiring, the fading away of pent-up demand, a rise in mortgage equated monthly instalments and inflation. Sales volumes have been tepid especially in rural markets, as purchasing power remains weak in these areas.
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Nonetheless, revenues are expected to have grown in low double digits. Gross margins for the quarter should improve across companies given softer prices of commodities and price hikes taken by companies but the growth in operating profits and net profits will likely lag the growth in revenues.
Auto manufacturers are expected to post a weak sequential revenue growth as volumes of two-wheelers and passenger cars have been weak. Exports of two-wheelers have been hurt by the dollar issues in African markets. However, gross margins should expand thanks to softer commodity prices and a better product mix.
In the IT space, the Street will watch for commentary on clients’ budgets for 2023, demand and the pace of decision-making. In a tough and deteriorating environment constant-currency revenues of software players would probably come in at sub-3% sequentially and at high single-digits year-on-year; furloughs, which have been higher than usual, would also add to the pressure. However, earnings before interest and tax (ebit) margins should improve thanks to cross-currency benefits.
Analysts expect good numbers from oil & gas companies, which are tipped to report a massive jump in operating profits sequentially by as much as 80%. Oil marketing companies should see smaller marketing losses thanks to lower under-recoveries for both diesel and LPG and over-recoveries for petrol sales. Gross refining margins are expected to remain steady even as the refinery throughput is expected to go up sequentially. With the price of gas having gone up by 40% since October, upstream companies will gain. Moreover, the volumes of crude oil sold have also seen a modest increase.
With realisations for steel estimated to have fallen by 2-3% sequentially due to prices and contracts having been re-negotiated, revenues of steelmakers will be under pressure. However, margins will rebound owing to gains from lower raw material costs. The Street would watch for management guidance on demand in a slowing economy.