Q4FY16- WHAT LIES BENEATH?
By Ruma Dubey
The much expected RBI rates cut has come and gone. Despite the announcements, the markets remain range bound as next week onwards, fourth quarter performances would start coming in. All eyes are now on the Q4 performances and with all round slowdown, results are not expected to be good in most of the sectors. There are some sectors which have bucked the trend and would post a good performance, providing the balance. The market is prepared for an overall poor show by India Inc in Q4 but how poor - only the actual numbers can indicate. A quick look at some of the sectors…..
Auto Sector is expected to show a good performance with Ashok Leyland, Eicher expected to show the best growth on the sector. The first three months sales numbers for most have been good and this is sure to reflect in some good if not chartbusting performance for Q4FY16.
If the auto sector is expected to have a good ride, surely the auto components sector too will follow suit and ditto for the tyre makers too.
Realty is another sector which will stage a poor show. The fall in demand and lack of liquidity is sure to have taken its toll. Big time realty companies might show a lackadaisical performance but not too precipitated a fall as they have managed to sell land or stall projects but have managed to stay afloat. For those in the mid and small cap segment, things might actually look up.
Infra companies might post a mixed bag of performance. BHEL has given a very positive preview of the oncoming Q4 but yet, the outlook remains cautious. Many stalled projects have been revived and we could some improvement. Post the RBI injecting liquidity and rates coming down a bit, this sector might perk up substantially in the coming months if supported by some strong legislative actions by the govt.
Banking sector will continue to pain. The saga of NPAs is expected to continue and we could see some banks asset quality worsening. Growth overall, economically, has been sluggish in Q4 and this is sure to be reflected in this sector. Keep a watch on treasury gains, especially of PSU banks as they could show a sharp jump, making up for the higher costs of credit. As always private sector banks are a better bet because they might report a smaller decline than the PSU banks.
Cement could take home a sack full of profits. Cyclically, the sector is as such poised for a upturn and we expect volumes to show a pick up. Two factors work its favour – consolidation and lower costs of coal, which makes up for 20-25% of the total production cost of cement. Decline in diesel or freight costs too will benefit the margins. Thus earnings downgrade for this sector is at the fag end of the tunnel, mainly for large-cap cement companies. Cement prices have also turned favourable and we could see cost benefits accruing to the companies.
IT is the sector which will usher in the Q4 results, like always with Infosys declaring its performance on 15th Jan. With the US economy, the largest customer base of the Indian IT showing a pick up. most of the IT companies are expected to show a better QoQ performance. The lower base effect of Q3 on account of the holiday season is also expected to play in its favour. Thus IT companies will have a modest Q4 but outlook for FY17 looks much better.
Telecom is one sector which is poised to well. The companies, like the previous quarter, are expected to show an improvement in the performance of voice business sequentially, led by increased ‘minute’ growth and voice RPMs. Most in the sector - Bharti Airtel, Idea and Tata Communications are expected to do better while we could see some pressure in Rcom.
Textiles might show a dismal performance as exports have literally halved for the moment. The US is the single largest export destination for Indian exporters accounting for 13% of total Indian exports last year. And in Q3 itself we have seen this stress. Those with realty diversifications have done well only because of the realty vertical while textiles remained under pressure.
Pharma sector’s Q4FY16 is expected to be good despite the current issues with US FDA, mainly on the back of lower base effect (YoY) with some companies expected to show one-time gains from limited competition products in USA. It could be a mixed bag of sorts with the usual suspects showing some stress like Dr.Reddys, Glenmark while Lupin, Aurobindo, Sun Pharma, Natco and Torrent to be companies to watch out for.
FMCG would post a good performance as people have not cut down buying soaps and shampoos. Also with the companies now selling more in rural India, where the impact of the slowdown is lower, the companies are expected to better YoY expansions in margins. Volume growth is expected to lead the expansion. Raw material costs have come down considerably and that could once again help better the margins.