Q3FY18 – YoY PICTURE TO LOOK PRETTY GOOD

By Ruma Dubey

The earnings season has started with Q3FY18 numbers starting to trickle in. The first “big: one is of IndusInd Bank and TCS, scheduled for 11^th Jan and Infosys for 12^th Jan.

This company wise Q3 performance will be the trigger for markets in the coming days. Unlike earlier quarters, where expectations were muted, this time around, hope is running high as most expect numbers to come in pretty strong, indicating a jump back from pains of GST and demonetization. Remember, the biggest factor at play would be the lower base effect because in 2016, Q3 was when demonetization was announced and companies showed the suffering. Though, what we need to bear in mind is the rising price of commodities and that will be reflected in the operating expenses. But the stock markets are at a historic high and moods are running from degrees of euphoric to optimism. Thus no one expects anything untoward from Q3 numbers; after all, we are Indians and we do not like and tolerate any negative news!

While commodity prices might dent the margins a bit, the companies in commodities will post solid numbers  and ditto for consumer goods and auto sector, which Month-on-month have been showing some great numbers, especially December. Coal India might surprise us with better numbers as many power projects have taken off and production has also been ramped up.

Hotel industry could be a bag of surprises as Q3, seasonally is the best and reports suggested that occupancies have been good.

Capital goods companies are expected to show a better performance as order intakes have been pretty robust and one only hopes that execution has also kept pace. In commodity specifically, watch out for results of rice, tea and coffee companies. Textile firms could actually pleasantly surprise us.

The other sectors to post some superlative growth numbers would be cement – growth led by low base effect and GST-led savings, metals (base metals) – on account of higher realisations and oil& gas – especially Oil Marketing companies (OMCs) which will reap the benefit of the rise in crude oil prices. And we could see soft numbers from IT and healthcare – both bit by USA, one by Trump’s rulings on H1-B visas and the other by FDA and pricing pressures. NBFCs are also marked to do much better in Q3 due to the increased demand during the festive season for automobile and consumer goods.

PSU banks might continue to remain the laggard as higher bond yields are bound to leave a telling effect on the treasury income. The on-going saga of NPAs is also expected to continue and we could see banks making higher provisions to offset the losses. That pain is nearing the fag end; FY19, hopefully will be a new dawn for the sector.

In a move which brought cheer to us mobile users, will cause pain for the telecom operators. TRAI slashed mobile termination charges (MTC) by 57% to 6 paise per minute with effect from October 1, in a move that led to a reduction in call rates. Bharti, Idea and Vodafone actually wanted the TRAI to double the MTC while Jio wants it to become zero. Thus Jio is the biggest beneficiary while the hurt will be seen in the numbers of Airtel and Idea.

Thus YoY Q3 will be good but we should probably look ahead, beyond Q3 and expect things to only get better. The overall sentiments are robust and some reforms have got the go-ahead. It’s best to hope that after Q3, we will see the green shoots we all so desperately want to see.