NEW DELHI: The country’s 30-blue chip firms may witness as much as 10 per cent decline in their first quarter profits in the current fiscal,
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primarily due to subdued earnings from real estate and metal sectors, analysts believe.

“We expect Sensex PAT to de-grow by 9.7 per cent Year-on Year (YoY) in Q1FY10– the third straight quarter of decline. Sensex sales is likely to fall by four per cent,” domestic brokerage firm Religare said in a report.

However, earnings are likely to be relatively better due to a favourable swing in currency movement during the quarter and extraordinary items.

“The Sensex earnings (excluding-oil companies) are estimated to drop by 4.9 per cent YoY, implying a better performance compared with the 8.8 per cent decline seen in Q4 FY2009,” another brokerage firm Sharekhan said in a report.

“The first quarter figures are not expected to be good as there were concerns of election results and budget. Now that everything is in place we can expect better earnings figures in the second half of FY10,” Religare Capital Markets President Equity Amitabh Chakraborty said.

Global research firm Macquarie said recovery in the economy is still in its early stages and that it may be too early for a significant pass through to corporate earnings. “However, the foundation for the recovery has been set,” it added.
Sectors such as real estate, metals and pharmaceuticals are likely to act as a drag on the Sensex’s earnings. While banks and oil & gas companies are expected to be the “best performers for the quarter”, brokerages said.

Elaborating on the factors that would impact corporate earnings in the near term, brokerages pointed out that the new political equation, strong domestic liquidity and emerging new opportunities, continued focus on infrastructure and economic reforms would determine the next move.

“We expect aggregate operating margins to improve sequentially by more than 150 basis points as lower costs kick in. Auto sales volumes have increased sequentially, with better financing from state-owned banks and higher rural sales the key drivers.

“Infrastructure should also see continued moderate growth due to the robust order backlog, with stable margins,” the Macquarie report said.

“Possible divestment, increase in permissible FDI in sectors like insurance, steps towards consolidation of state-owned banks, oil price deregulation, continued infrastructure thrust would be viewed positively,” it said.

The 30-Sensex companies which started their first quarter earnings season with Infosys last week, would see HDFC Bank and L&T announcing their results this week.

“Q1FY10 is low on expectations and hence could prove to be something of a non-event. Instead, the budget
outcome and the monsoons are the highest event risks today,” Religare said.

source: Economictimes

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