AFFLICTED, DEAD, CURED AND STAYING HEALTHY – MATH OF EARNINGS

BC and AC. That’s how we now look at the past and future – Before Corona and After Corona.

If it had been business as usual, we would be looking at the Results Calendar, trying to keep pace with the speed at which results for Q4FY20 and FY20 would have started pouring in.

Today, we are at 13th and the first one, Wipro will be on 15th, which is mid-month and TCS following closely the next day on 16th. HDFC Bank is 18th. GM Breweries, which is usually amongst the first, heralding the arrival of the earnings season is yet to announce its date and so in Indusind Bank.

It is understandable too. With the lockdown in place, getting the earnings out in itself will be a huge task, impossible for most. In this chaos, when the entire month of March has almost been a washout, companies obviously want to bid their time, take advantage of the 30th June extension.

But once the numbers start coming in, it will give us a peek into the real impact of the lockdown on India Inc and potentially, clues about the rest of the year. It will actually be a test for the stock market too – it seems to have discounted the outbreak but the earnings will show much prepared it really is to brace for the impact of profits. It is a known fact that the pandemic has and will cause untold damage to the economy and major fall in earnings but what we don’t know is the extent of this.

It is a foregone conclusion that companies will not be able to forecast their earnings when there is so much ongoing uncertainty. As of 10th April, in the USA, 295 companies have withdrawn guidance.

Many companies have said that their topline or revenues have vanished as factories are closed and employees are working from home. Cost cutting and furloughing employees is what will reflect on the margins.

But does the stock market know these facts? The kind of plateau we saw today or the crazy rise of the markets last week do not reflect the extent of the damage. Projected earnings or estimates are used to value stocks and with estimates gone askew, valuation itself seems opaque and that in itself means that once earnings start coming in, markets could see more volatility.

Most of the brokerages and analysts are yet to sit down and work out their own estimates of the companies they track – as someone rightly said, they all know the estimates have to be cut but they don’t know what kind of a knife to use – the one which cuts deep, or that which scrapes or that which butchers.

At the same time, this sudden stoppage of the economy will show us which companies have been resilient enough to emerge if not completely maimed but relatively unscathed, showing a stable revenue stream. More than the numbers, like always pay attention to the commentary of the executives – that will give us an insight of how badly or how well the company has adapted in the AC time.

So just on the basis of a back-of-the-envelope kind of study, sectors which will show the biggest suffering would be airlines, hospitality, tourism related – they are directly impacted.

Then comes auto sector, realty, construction materials, gems & jewellery, metals and mining. A report by Kotak Institutional Equities states that oil, gas & consumable fuels would be impacted by lower realisation for upstream companies and inventory loss for downstream companies. There is really no sector which has not been touched by the virus.

Yet, the silver linings to be watched for – consumer goods, pharma, banks, NBFCs, grocery retail, DTH providers, telecom and content providers cloud stand among the all the fallen. IT sector is expected to post a largely flat performance but we could the major impact coming in Q1FY21 as April too remains locked down.

No doubt, life as we know has been altered permanently as we can only go back and forth between AC and BC; YoY and QoQ will have no meaning.