Q2FY14 - DON'T WAIT WITH BATED BREATH FOR THE RESULTS
By Ruma Dubey
The countdown has begun to the Q2FY14 numbers. And this time around, it is Infosys, which will kick off the results for the second quarter in the big ticket category, scheduled to announce its numbers on 11th Oct. HDFC Bank and Indus Ind, both are scheduled to announce their Q2 numbers on 15th Oct. Like always, IIP data will also come on the same day as Infosys numbers – on 11th 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.
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 Consumer Price Index for August came in at 9.52% v/s 9.64% in July and 9.87% in June. This gave some solace to the heart that at least there was some containment in this inflation; marginal albeit an improvement. That set expectations going that July IIP could come in much better than expected and might actually show a growth rather than a contraction. And it did! July IIP came in at 2.6% v/s degrowth of 2.2% in June. Thus it is a very mixed signal on the growth front but depreciating rupee and rising interest rate show a negative impact. We could see companies which depended on imported commodities as raw material taking a hit and export oriented units could see some improvement. 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. HCL Tech had a good running for period ended 30th June and and the coming new year and quarter for the company is also expected to be good. Infosys had disappointed and it had given a muted guidance for FY14 where revenue growth is expected at 6-10% much lower than what most analysts had expected and more importantly, lower than the 10-12% growth estimated by the IT industry body NASSCOM. The company has given no EPS guidance. TCS posted very good numbers for Q1FY14 and though it does not give guidance but it expects to better Nasscom's growth estimates of 12-14%.
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 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 subdued while auto ancillaries could also see their momentum winding down. Cement numbers could be flat as higher realization and higher dispatch could be offset by higher fuel and interest costs. Realty companies too could show poor numbers but sale of assets by many could boost keep the bottomlines from getting dunked in the red. FMCG too are expected to show a set of good numbers due to good rains. NBFCs will have a lackluster show as the volatility in the markets – stock as well as forex was at its peak in Q2. Hospitality will also remain subdued but dollar depreciation led to a surge in tourists and that could lead to some surprises. Metal stocks could get beaten down due to lower realisations and higher raw material prices. Mining sector continues to remain clogged and Q2 is not expected to be any stronger. 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 show some pressure.
Bottomline – Q2 will be weaker than Q1 and thus depending on the numbers to lift up the market sentiment might not be a prudent move!