Equity investors can expect a better show by the country's top listed companies during the January-March quarter.
The combined net profit of the benchmark BSE Sensex's 30 companies is estimated to grow 14.6 per cent year-on-year, against a 5.7 per cent year-on-year decline in the December 2015 quarter. There was an 18 per cent fall in the corresponding year-ago period.
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This will be the highest earnings growth for Sensex companies in seven quarters.
Brokerages also expect a recovery in revenue, with combined net sales for the index companies estimated to grow 1.8 per cent over a year, reversing the trend of revenue decline in the previous five quarters (see charts).
The analysis is based on the March quarter earnings estimates by the country's top eight brokerages - Religare Securities, Sharekhan, Kotak Securities, IIFL, Edelweiss Securities, Spark, ICICI Securities and Emkay Global.
For banks and financial firms, net sales are gross revenues net of interest expenses; for the others, it is total income from sales & goods and services (net of indirect taxes). Profits are net, including exceptional gains & losses.
Earnings growth is likely to be driven by a low base effect, an incremental rise in commodity prices and gains to exporters from rupee depreciation during the quarter.
The broader trend in earnings, however, is expect to be muted.
"We expect net income of the KIE universe to remain flat on a year-on-year basis. Automobiles, consumer products, pharmaceuticals and IT are expected to lead earnings; banking, metals & mining, telecom and utilities are set to trail," write analysts led by Sanjeev Prasad at Kotak Institutional Equities (KIE).
Analysts at Edelweiss Securities expect most of the gains from the export sector. "Improvement in our coverage universe's profits will predominantly be led by the export sector, driven by pharma and automobile exporters. On the domestic front, the story remains similar to the past few quarters, with a lacklustre capex cycle, rural slowdown and poor profitability of industrials, consumer staples and public sector banks," write analysts led by Prateek Parekh.
Earnings will also get a boost from profit normalisation for Tata Consultancy Services (TCS) and Sun Pharmaceutical, two of the most profitable companies. While TCS' profit was impacted during the March 2015 quarter due to a special employee bonus, Sun's was under pressure due to costs related to the merger and integration of Ranbaxy Laboratories. The deal was completed in March 2015.
Among individual companies, the incremental rise in Sensex earnings (net profit) is likely to be led by Sun Pharma, Tata Motors, TCS, Hero MotoCorp and Lupin. Their combined net profit is expected to grow 77 per cent over a year, accounting for most of the incremental rise in Sensex earnings during the quarter.
They will more than make up for the earnings contraction in Tata Steel, Bharat Heavy Electricals (BHEL), State Bank of India (SBI), Oil and Natural Gas Corp (ONGC) and NTPC, among others. In all, nine Sensex companies are likely to report an earnings decline, with Tata Steel leading the chart with a net loss.
Revenue growth for the sample is likely to be led by top private sector lenders ICICI Bank and HDFC Bank. Followed by two-wheeler makers (Bajaj Auto and Hero) and top IT exporters (TCS and Infosys), respectively.
In comparison, ONGC, BHEL, GAIL, SBI and Reliance Industries are expected to report a decline in their revenue on a year-on-year basis. In all, eight Sensex companies are likely to report a fall in net sales.