Q1 just about matches analysts' estimate

The weakness in the economy is reflected in the number of laggards, if one goes by the estimates of analysts for the financial year's first quarter ended June 2013.

Of the Nifty 50 companies, 14 companies (28 per cent) lagged analyst estimates by more than 10 per cent. By contrast, just 10 companies (20 per cent) reported profits higher than the Street's estimates by over 10 per cent. Profits for the remaining 20 companies were within the 10 per cent plus/minus range, a range analysts consider reasonable to estimate beats.

In the June quarter, thanks to the fall in the rupee, exporters were supposed to do well, while the interest rate-linked sectors were expected to do badly. However, some companies have beaten estimates even after factoring in these assumptions, due to non-core transactions. For instance, Mahindra & Mahindra's other income rose to Rs 164 crore in the June quarter compared to Rs 60 crore in the year ago period and helped the company beat the Street's estimates. For Tata Steel, though operational gains also helped, its deferred tax gain boosted its net profit. Hence, its net tax outgo declined by 61 per cent year-on-year to Rs 352 crore.

On the downside, State Bank of India shocked the market with its poor profit performance (down 13 per cent year-on-year to Rs 3,241 crore) and higher expenses.

Consider another angle. Aggregate earnings of the laggards (14 companies) were lower by 18 per cent, compared to estimates. On the other hand, aggregates of companies that beat estimates were higher by just six per cent compared to analyst estimates.

The market, however, was looking beyond the numbers. Says Sonam Udasi, head of research, IDBI Capital, "The market is not looking at net profits but instead is looking at the books and numbers like NPAs and provisioning. The stress on banking has been closely watched".

On an aggregate level, the Nifty 50 company revenues were higher by around 1.6 per cent, while net profits was lower by 0.6 per cent compared to estimates. This aggregate growth looks in line but is not really the case. Says Mehraboon Irani, head (private client group), Nirmal Bang Securities, "Expectations were itself muted. Overall there were just 20 per cent out-performers than analyst estimates."

The slowdown, however, is showing for capital goods, infrastructure and power companies. Tata Power reported a loss of Rs 114 crore against analysts' estimate of a profit. Among the companies that surprised the Street negatively were BHEL, whose profits were down 39 per cent. Says Irani: "Capital goods companies are going to find it real difficult to service their debt and most of them have over-leveraged their balance sheets."