The results season for the fourth quarter and the full fiscal year is about to begin in the second week of April. While the actual numbers are awaited, it will be interesting to see how these numbers could pan out sector-wise.
Here are four possibilities we see:
Banking Sector could face NPA pressure
Indian banks have already written off close to Rs 242,000 crore in the last 5 years and the pressure could be felt in this quarter too. Most of the stressed asset cases may call for higher provisioning in the fourth quarter and that is likely to hit PSU banks the most. Also, power sector NPAs may start seeing write-offs in this quarter. One can also look forward to more aggressive provisioning by the vulnerable private banks like ICICI Bank, Axis Bank and Yes Bank which have had issues with the RBI on NPA under-reporting. Above all, the bond yields have gone up by 140 basis points in the last 7 months and that is likely to take a toll on the investment books of banks. Of course, banks can spread the loss across four quarters but the disclosure will be there in the notes. The pressure on PSU banks is likely to continue while select private banks may sustain previous growth rates.
Auto sector could be the fundamental outperformer this quarter
This quarter could see a sharp improvement in the profitability of four wheelers and two-wheelers. Overall auto will benefit from the lag effect of the compressed base due to demonetisation. With rural incomes coming back, we could see the impact in this quarter. Also, demand for all product categories has been robust and especially the turnaround in CV demand is good news for the auto companies. Maruti will reap the benefits of its dominance over the passenger car space while Tata Motors could benefit from domestic off-take and JLR demand.
IT industry could be in a sweet spot this quarter
One of the sectors that has outperformed the Nifty in the last 1 year is the IT index and not without reason. The sector had bottomed out a year back and we could see some robust growth in sales and profits in this quarter. Mid-tier IT companies are likely to post faster sequential growth and also better operating margins in this quarter. Additionally, the dollar weakening against the other hard currencies will mean that the cross currency tailwinds are likely to be positive for the IT sector overall. This could be the sector to watch and could positively surprise in this quarter.
Expect good tidings from the FMCG pack
This sector best represents the consumer pack and consumer demand. A rise in rural incomes, bigger cash dole outs to pensioners and armed forces will mean that there is going to be a huge boost for entry-level demand for FMCG products. Within the FMCG space, food products could be the big beneficiary benefiting from the very favourable GST cuts during the last quarter. Even though these cuts have been passed on to the end customer, the demand boost is likely to bring their top-line growth closer to the 5-6% mark, at least for the larger names.
At a more macro level this quarter will be critical in signalling a veritable corporate earnings recovery. The signs of the earnings normalizing in the aftermath of demonetisation were already visible last quarter and could get reinforced this quarter. The big boost could come from the rural economy due to a combination of farm loan waivers and higher government spending!
Mayuresh Joshi, Fund Manager, Angel Broking