Citi Sees Low Base Powering 21% Earnings Growth Despite Financial Sector Drag
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Citi Sees Low Base Powering 21% Earnings Growth Despite Financial Sector Drag

India Inc. is expected to report “strong” corporate earnings growth for the April-June period as companies benefit from a favourable base in the same quarter last year when companies were still reeling from demonetisation and disruptions due to the Goods and Services Tax.

That's according to the top team at Citi Research. “We have highlighted that a low base of last year is why you have such a strong 21 percent earnings growth expectation this quarter,” Surendra Goyal, head of India equity research at Citigroup, told BloombergQuint. “There are certain headwinds on the macroeconomic front. But at the company level we are starting to see the aggregate performance improve.”

Goyal’s optimism stems from the fact that revenue growth in the previous quarter, at the top Indian firms, was at its best level in the last two to three years. “That’s comforting,” he said.

Citi’s earnings growth estimates would have been higher but for the financial sector. “If you look at the first quarter, we are expecting over 20 percent profit decline in financials,” Goyal said. “And that’s what is pulling down the overall growth rate.”


A low base due to GST-led disruptions will help pharmaceutical companies, especially those which are India-focussed, according to Prashant Nair, deputy head of India research at Citi. “Other than that, what we are looking for is management commentary, particularly on pricing because now it has been a couple of quarters and management has been flagging off stable pricing.”

  • Important to see if pricing trends fall in line with management expectations.
  • U.S. business will be a mixed bag as companies with recent launches – Cipla, Dr. Reddy's and Glenmark – seeing some sequential growth.
  • Rupee depreciation will hurt profits.
  • Sun Pharma may see price erosion in the dermatological sales of Taro Pharmaceuticals.


In the financial sector, the long-standing trend of corporate-focussed banks underperforming will continue. “If you break it up, it is the same set of corporate-focussed banks which are really pulling down the overall earnings trajectory. That trend still continues,” Goyal said.

  • Expect loan growth to remain healthy helped by a low base.
  • Hardening of bond yields may impact treasury gains.
  • Expect slippages to reduce sequentially.
As we go through this year the focus will shift from non-performing asset recognition to NPA recovery. But this quarter we will only see some of the residual NPA recognition happen.
Manish Shukla, Vice President, Citi

Information Technology

The IT sector will have a slightly better year. “This year we are seeing a modest acceleration in growth but it will not be very significant,” Goyal said. He added that Infosys and Tata Consultancy Services both performed pretty much in line with Citi's expectations.

  • Cross currency headwinds are likely to impact growth.
  • Commentary on banking and financial services and insurance business will be “keenly watched”.
  • Constant currency growth may remain in the range of -1 percent to 4 percent sequentially.


Metal companies are expected to have a good quarter too due to a low base and better price realisations. I don't think we will be disappointed on the results,” said Raashi Chopra, Director of India Research at Citi.

  • Steel stocks will do well as prices have gone up. For Tata Steel, the operating profit per tonne expectation is near a historic high
  • Aluminium companies, especially those with an integrated play, will benefit as aluminum prices too have increased
  • Companies like Vedanta and Hindustan Zinc may have some cost pressure

Watch the full interview here:

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