Slowed by global headwinds, among other things, India Inc. put up a weak show in Q3FY19 to record the biggest earnings dip in three quarters. As per an Economic Times report, the revenue of 1,969 companies that declared their results in the quarter rose 17%, but their aggregate net profit declined 37%.
Although most companies delivered in-line earnings, a few sectoral disappointments led to a negative aggregate bottom-line in Q3.
Among the Nifty50 companies, 41 of the 50 firms met or beat analyst estimates. However, negative surprises such as the dismal earnings of Tata Motors dragged the average EPS of the Nifty50 down.
Let us look at which sectors did well and which sectors played spoilsport this quarter:
Auto – Leading the flop show
Tata Motors reported what was the biggest loss in India’s corporate history. It made a consolidated net loss of ~Rs27,000cr mainly due to the slowdown in China and write down of JLR investments. Other auto companies also came out with weak numbers owing to unfavorable forex rates and high commodity prices. Although a revival may not be anywhere near, a favorable monsoon may help the sector get back on its wheels.
BFSI – Earnings growth to normalize in coming quarters
Asset quality improved in banks such as SBI, which came back to green pastures having reported a net profit of Rs4,709cr vs. a net loss of Rs1,887cr yoy. Axis Bank also reported stellar performance with a 113% jump in PAT qoq. Normalization of earnings growth in banks is likely to enhance overall earnings growth in Nifty50, however, the impact of IL&FS exposure is expected to weigh on the sector over the next quarter. Housing finance companies still face caution as liquidity issues have not been adequately addressed.
Telecom – No respite in sight
The industry reported a loss of Rs4,982cr, almost 5x times the loss in Q3FY18. This is expected to continue with cash-rich Reliance Jio on its way to crush its rivals.
Information Technology – Falling rupee a key tailwind
Except Infosys, most large IT firms posted a good set of numbers, thanks to the favourable forex tailwinds, however, margins remain a challenge for these firms.
Oil & Gas – Crude oil plays spoilsport for upstream cos
Upstream companies posted disappointing results as oil prices retreated. Downstream companies such as HPCL and BPCL, too, failed to benefit from the crude price dip as marketing margins contracted. IOC reported a 97% fall in net profits for the quarter.
Chemical – Chinese firms’ challenges to remain
The sector benefitted mainly due to the issues plaguing the Chinese counterparts. Prospects look good for companies in this sector over the long term with Chinese peers being required to switch from coal to gas, which will be a time-consuming task.
Consumer stocks – Resilient volume growth aids top-line
Although these stocks delivered robust results in terms of top-line and volume growth, margins remained under pressure due to elevated input prices. Titan Company posted stellar growth with its PAT up 43.5% yoy in Q3FY19.
Dull numbers in Q4 may not surprise us, however, given the subdued inflation expectations over the next year, RBI’s softening stance and initiatives to ease liquidity, an improving macro situation, soft commodity prices as well as the expected recovery in the banking sector, FY20 may be poised for better earnings growth.