Q2FY16 RESULTS - TO BE Q1 'ACTION REPLAY'
By Ruma Dubey
The countdown has begun to the Q2FY16 numbers. Earlier it used to be Infosys which used to kick start the earnings season; no longer so after the new management took over. Nowadays this crown of being the “first” is held by IndusInd Bank which will declare its numbers on 9th Oct. Infosys is scheduled for 12th Oct and like always, so is IIP data – both have almost always come on the same day. TCS is set for 13th.
Expectations, this time around are much muted. No one is really talking about Q2 numbers being ‘number changing’ for the markets. Q1 was disappointing and with things having not really changed much, apart from Modi trying to whip up confidence with its rhetoric reform announcements; there is really nothing great in the waiting.
It is expected that Q2 will more or less be like Q1, disappointing to a large extent but the good news is that, maybe this could be the bottom which India Inc could scrape. If one looks at the macro factors to get an insight into Q2, it is apparent that things do not look great. The Q1FY16 (April to June 2015) was largely expected to be around 7.5%. And it came in at 7%, down sequentially from 7.5% but up from 6.7% (YoY). Recovering to be consolidating if not gathering momentum; that was the perception but these numbers come as a disappointment. Given the lower energy, commodity prices, one would have seen discretionary production but this number shows that there has been some staggering of growth. Clearly what we see is some level of resistance of the economy braking out of a narrow band. Lower commodity and stable food prices have not helped the economy break out and that is what we need to address.
The good news now is that second half could be much better given the lower interest rate benefits which companies might start seeing. Crude oil prices are down and raw material, commodity prices have been down – the effect of all this could be better margins.
Q2 is cyclically the best for the IT sector and IT companies are expected to post better numbers. HCL Tech had a good running for period ended 30th June but it has already issued a warning that Q2 could see some downward pressure. Infosys, many analysts predict, could have a much better run in Q2; much better than previous few quarters. TCS posted very good numbers for Q1FY16 and though it does not give guidance but it expects to better Nasscom's growth estimates.
Performance from sectors like pharma, FMCGs and hospitals are expected to remain good. Aviation companies, thanks to lower fuel prices could once again post very good numbers. Oil and gas growth could be mixed. Private sector banks are expected to do well while PSU banks could be down as rising NPAs could remain a big concern.
Auto sector could be better than Q1 and so would auto ancillaries. Cement numbers could be slightly better margins than Q1 due to lower fuel costs. Realty companies could show poor numbers but sale of assets by many could boost keep the bottomlines from getting dunked in the red. FMCGs number could be nothing earth shaking. NBFCs will have a good show due to very good markets – stock as well as forex was at its peak in Q2. Hospitality will also remain subdued but rupee depreciation led to a surge in tourists and that could lead to some surprises. Metal stocks could get beaten down due to lower realisations – the China effect will be felt the highest by this sector. Ditto for mining sector. 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, tea and coffee companies. Textile firms could actually pleasantly surprise us. Telecom too is expected to ring in a good tune.
Bottomline – Q2 will be similar to Q1 and thus depending on the numbers to lift up the market sentiment might not be a prudent move! H2FY16 holds more promise.