Q2FY13 - AWAITING THE REPORT CARD WITH NO EXPECTATIONS
By Ruma Dubey
The countdown has begun to the Q2FY13 numbers. And this time around, it is not Infosys, but Indusind Bank which will kick off the results for the second quarter in the big ticket category, scheduled to announce its numbers on 10th Oct.
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 UPA trying to whip up confidence with its rhetoric reform announcements; there is really nothing great in the waiting. And that probably explains why all eyes are on the IIP numbers scheduled for 12th Oct, inflation numbers on 15th and then the Credit Policy on the 30th. Yes, Infosys numbers are on the same day as IIP and so is HDFC Bank, yet the focus is more on IIP. Thus macro economic factors have become more significant that micro.
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 – July IIP was at 0.1% and even HSBC Purchasing Managers Index was stagnant. Inflation remains stubbornly high and with fuel prices also hiked, prices are not expected to come down in a hurry. The WPI in Aug was at 7.55% v/s 6.9% in July and CPI was at 10.03% in Aug v/s 9.86% in July. Also downgrades by rating agencies might have abated a bit but upgrades are also not happening. Rupee might have strengthened now, thanks to the resolve shown by the Govt in pushing forth reforms but through most of Q2, the rupee was down and that means, companies which depended on imported commodities as raw material could take a hit. Q2 is cyclically the best for the IT sector and with most of Q2 having had a lower rupee, IT companies are expected to post better numbers, even Infosys and with TCS bagging a huge order from Europe, it has also buoyed sentiments though, HP giving a pessimistic forecast for the future has cast a shadow. IT will not show any major turnarounds but it could be a bit better than Q1.
On the other hand, performance from sectors like pharma, FMCGs and hospitals are expected to remain good. Aviation companies, thanks to the ongoing trouble at KFA and given Indian Airlines erratic services, could once again post very good numbers. Oil and gas growth could remain muted. Even the financial sectors, especially NBFCs could surprise us with good numbers. Private sector banks are expected to do well while PSU banks will be a mixed bag though likes of PNB, BoB and Union Bank of India could present a pleasant surprise. But these silver linings could be far and few in between. Capital goods sector could continue to remain weighed down by interest burden and realty companies could spring a few surprises, with Sobha Developers already having sounded its victory bugle for Q2.
Crisil believes that the worst is over for India Inc and based on an analysis of the aggregate financials of 280 large companies across 28 key sectors, it expects EBITDA margins to improve by 20 to 40 bps in current Q2.
Despite all these not-so-good expectations for Q2, one should probably look ahead, beyond Q2 and expect things to only get better. The overall sentiments have improved and if reforms do manage to get through during the Winter Parliament session, then it will be only one way ahead – up and up. Yet, that is a big ’if’. Sadly, for now, demand remains sluggish, there is no new major capex being planned, growth is down, inflation is up and interest rates remain up. Maybe this time around, though the economic fundamentals do not warrant any rate cut, RBI might just announce a rate cut to pep up the sentiments. After all, RBI was all along waiting for the Govt to break its stoic inaction mode and now that has been, maybe RBI will act. If that indeed happens, yes, Q2 might be the last set of depressing numbers which India Inc could witness.