Q1FY16 RESULTS - ANOTHER QUARTER OF MUTED PERFORMANCE
By Ruma Dubey
It is once again results time. 30th June is over and gone and like always, with nothing really to look forward to, markets are training their eyes on Q1FY14 numbers to get cues for the future.
The first big wig Q1FY16 performance will come from an IT company; thankfully that tradition remains intact and so does the fact that IndusInd Bank will hold the mantle of being the first private sector bank to announce its performance. But what has changed is that Infosys is no longer the first IT company; it has given up that tradition ever since Sikka took over. This honour, of being first, now lay with TCS. It will be announcing its results on 9th July and like what we have seen in the past, it could be much later in the evening, after market closure.
Like in Q4FY15, expectations are pretty muted for Q1FY16 as the ground reality has not changed much. Things remain sticky and we could see some improvement probably from H2FY16.
Q1 numbers are not crystal gazing; it is more about looking into the past three months and it is the past experience which is expected to give cues for the coming months. Today, the moods remain despondent, much more pessimistic than what they were at the end of Q4FY15. It has also been a time of extreme global uncertainty, with China facing a slowdown and a tight liquidity scenario, Greece and Europe remain a worry. And in all this, US is looking good, slowly but surely bouncing back.
The IT sector in India continues to show some signs of trouble still remaining though it seems better than Q4. The cross currency winds continue remain a threat, especially given the evolving situation in Europe which could impact the Euro. But overall, Q1 of current fiscal is expected to set the tone for a better FY16. Q1 is seasonally also very strong for IT; this factor apart, improvement in US augurs well for the sector. Within India itself, given the impetus being given to digitize India, usher in e-governance, domestic markets themselves present a good opportunity. Keep a watch on the EBITDA margins as we could see a dip due to wage hikes and increased visa costs.
In the Banking sector, once again performance is expected to remain tepid. Most brokerage houses have put out reports stating that they expect a dip in earnings as treasury income could be impacted due to lowering of interest rates which in turn would have resulted in higher yields. Credit growth remain weak and that could impact the overall performance, especially in PSU banks. Asset quality continues to remain a worry and sequentially, it is expected to go up for PSU banks. HDFC Bank and Axis Bank are expected to swim against the tide and most estimate these two banks to post a much better performance.
Auto numbers for each month of Q1 has been fairly good and especially so for two-wheelers and commercial vehicles or trucks. Maruti, Ashok Leyland and TVS are expected to be the outperformers while Tata Motors could show a lot of pressure, like it did in Q4.
Cement is expected to be a mixed bag with big companies being able to survive the slowdown in realty and construction due to economies of scale while small and mid size companies could show pressure on the margins.
Realty companies too could show poor numbers but sale of assets by many could keep the bottomlines from getting dunked in the red though debt will continue to remain a big worry.
FMCG too are expected to show a set of good numbers, maybe keeping in line with its Q4 performance but one does not expected it to outperform sequentially. Hospitality could continue to remain muted while airlines could show good numbers due to lower fuel costs with no commensurate lowering of traffic for passengers. Metal and mining companies are expected to show some more pain and Tata Steel could be a big drag.
Agro based companies, especially fertilizers, especially gas based and pesticide companies usually have the best performance in Q1 and Q2. Capital goods companies are expected to remain muted – though 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 and tea companies. Telecom remains a bright spot and we could once again, like in Q4, see some good numbers coming in Q1.Overall infra sector performance will remain muted but road project could throw in a surprise as one saw an increase in road projects project during the quarter.
Oil and gas would be another significant sector. With crude prices falling, it would be interesting to see how the numbers pan out. Cairn India is expected to have a painful Q1 as it has already indicated the same. Especially good numbers are expected from Oil Marketing companies (OMCs) BPCL, HPCL and Indian Oil as they are virtually on zero under-recoveries. ONGC could also show an improved performance as its subsidy burden has come down. In the same vein, all crude and crude derivative dependent sectors – those using this as major raw material will show improved margins – paint companies and lubricant companies being the big gainers.
Bottomline – Q1 will remain muted; better than Q4. Thus it is best to nurture no great expectations.