According to discussions and deliberations on Nirmala Sitharaman’s maiden Budget speech, it would not be wrong to assume that Union Budget 2019 failed to meet market expectations. The stock market indices were down over 1% on Friday, i.e. 5 July, and most experts feel that Sensex and the Nifty may correct even further on Monday.
However, as the quarter earnings season kick-starts this week, investors will be quick to shift focus from the budget to earnings. IT behemoths Tata Consultancy Services Ltd and Infosys are set to announce their earnings on July 9 and 12, respectively. IndusInd Bank will also declare its first quarter results on July 12.
Among other companies that will announce their quarterly earnings this week are Karnataka Bank, Avenue Supermarts, CCL Products, GTPL Hathway, Delta Corp and Goa Carbon.
Brokerage houses expect the overall earnings growth to be in double digit for the Nifty as well as Sensex companies, driven by a strong performance by banks which had faced asset quality crisis in the year-ago period.
“We expect robust year-on-year growth in the net income of (1) banks (stable operating performance, despite marginal QoQ (quarter-on-quarter) slowdown in loan growth), (2) construction materials (increase in realization papering over low volumes) and (3) capital goods (uptick in execution from base orders for L&T) sectors,” Kotak Securities said.
Kotak, however, expects a weak quarter for automobiles (lower sales volumes and margin compression due to increase in discounts), metals and mining (decline in realizations) and oil, gas and consumable fuels (weak refining margins and adventitious losses for downstream companies).
TCS, one of the first companies to announce June quarter earnings, is expected to deliver steady growth in constant currency revenue, but profit could be lower sequentially due to margin pressure.
Brokerage house Prabhudas Lilladher said: “We expect TCS to post broad-based revenue growth and expect its strong deal momentum to continue. We expect EBIT (earnings before interest and tax) margins to decline by around 90 bps on account of wage hike, rupee appreciation and visa costs.”
Infosys, the second largest software company in India, is also likely to deliver stable growth in constant currency revenue, but pressure on margins due to wage hikes in the June quarter could impact profitability.
Kotak expects Infosys to post EBIT margin decline of 110 bps due to wage revision for 85% of employees that will impact margin by 100 bps, higher H-1B visa applications relative to the previous year that will result in additional costs and rupee appreciation impact of 30 bps. “Margin impact will be offset to some extent through higher utilization and cost control measures,” Kotak said.
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