FE Editorial : Infy and after

Sat, Oct 10 01:42 AM

Corporate results for the second quarter ended September kicked off on Friday with Infosys Technologies reporting 2.8% sequential growth in its topline. The IT bellwether has been able to maintain margins, increased guidance, added 35 new clients, given pay hikes and promotions and hired new employees—making it an all-round good performance. Globally, there are signs of recovery and IT companies would have to wait for the next Budget cycle to get a better feel of how it is going to pan out. IT companies are reporting easing of pricing and stability in volumes and new geographies consistently performing well ahead of the US and Europe, along with pent-up demand. However, the key challenge for the sector as a whole will be the volatility of rupee which is appreciating against the greenback. Overall, corporate results for the quarter ending September are expected to show an improvement in topline backed by the fact that the advance tax paid by companies in the second quarter of the financial year increased 15% year-on-year as compared with a decline of 4% in the first quarter. Sectors like auto, cement, IT and FMCG are expected to post stellar results and earnings divergence is expected in sectors like telecom, power and banking. The dampener would be the rise in prices of commodities and strong upward movement of base metal prices which will impact the topline of metal companies. For auto companies, low interest rates and improved consumer sentiment helped to push up volume sequentially from the first quarter onwards. Most notably, commercial vehicles which saw decline in sales for over eight months are now reporting uptick in sales indicating revival of demand of goods and services across the country. The retail sector is expected to report increase in topline as footfalls have started increasing resulting in an increment in the sales per square feet of the retailers. For banks, the overall profitability is expected to be moderate as credit growth remained low at 14% during the quarter. Consequently, net interest margin is expected to remain flat in the quarter with repricing benefits being marginal.

Companies have discounted the impact of weak monsoon as low interest rate and adequate liquidity with banks will ensure resurrection in consumption demand. Also, with various government schemes like NREG and Bharat Nirman estimated to collectively spend about Rs 85,000 crore in this fiscal, it would supplement income in rural India. As confidence in domestic and global recovery grows further, and liquidity conditions remain easy, analysts expects the upgrade momentum to sustain over the coming two quarters as well. Various estimates put out by analysts show the consensus earnings growth for Sensex companies for the fiscal has recovered from -3% in July to 5% now. The current interest rate scenario and improved consumer sentiments would help continue the strong domestic momentum.

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