Q3FY20 – NO GREAT EXPECTATIONS

about 6 months ago
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A very difficult and tough FY20 has entered into the last quarter. And now is the time when we look back at Q3. The earnings season is about to get kick-started with the first big one coming from Infosys on 10th Jan. For some time, this mantel was taken by TCS but this time around, being mired in the Cyrus Mistry controversy, the company is yet to announce the date of its results only after clarity emerges on the status of Mistry’s directorship with the company.

DMart will be another result which will be widely anticipated – it is scheduled for 11th Jan. And like always it is Indusind Bank which pips other banks but this time around, it is joined by Bandhan Bank – both will announce their numbers on 14th Jan.

The performance of most companies, in terms of net profit will be far better than what we saw in Q2 – not because they have all turned around but because of lower taxes and mainly low base effect. But in Q2, revenue growth of India Inc was at its lowest in 14 quarters. So this time too, let us keep a watch on the revenue growth first – that will be a much better indication of whether or not the company is out-of-the-woods truly. Maybe the earnings have bottomed out but Q3 is most certainly not the starting point. If you expect to see green shoots this Q3, maybe you are too cut off from reality.

In the auto sector, we saw a spike up in monthly sales of November but it once again fell in Dec. Thus we might see companies report an improved net profit, more on account of tax but revenues could continue to so pressure as huge discounts and promotions undertaken during the festive season will reflect on the topline.

Banks are expected to show a much better performance as NPAs might be lower in Q3, barring SBI, which could continue to shock. ICICI Bank is being touted to the main one to watch for in the sector.

Not much is expected from capital goods and infra stocks are order intake and execution, both were muted on account of less or no orders from the state as well as central Govt. L&T is to announce is performance on 22nd Jan – watch closely for its guidance on the order book – if it gets lowered from 10-12% for FY20, we know where the sector is headed in Q4.

IT companies are expected to deliver a flat sequential growth as Q3, seasonally is not very strong on account of the holiday season world over. Telecom is expected to do much better due to lower base effect but higher 4G subscription addition. Jio starting to charge for voice calls will work to the advantage of Airtel and Vodafone Idea. Synergy of fewer towers and lower costs will help.

FMCGs will manage to hold on to their margins, mainly on the back of cost cutting measures. But in terms of topline growth weak rural and urban demand will impact.

One sector which we all should look out for is cement. Already the stock prices have started reacting even before the numbers because market knows its good tidings.  With lower input costs, especially for coke vis-à-vis higher realisations, cement companies are expected to turn in a much robust performance.

Steel is another sector which will do well on account of lower iron and coking coal prices plus steel price itself jumping up 10% from its lows in September.

Realty companies are likely to show an uptick in sales but on weaker realisations. While North India continues to remain sluggish, south is seeing some hope with new project launches.

Thus overall, Q3 will be another quarter of muted performance. Thus its best to not nurture great expectations.

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