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Citi Research: Fourth Quarter Earnings Growth May Rely On Just One Sector

India Inc.’s earnings growth for the quarter ended March hinges on the financial sector.

The earnings of nearly 150 companies tracked by Citi Research is expected to grow 44 percent on a yearly basis on account of a low base of the financial sector, according to its report. But excluding this sector, the research arm of Citi Group forecasts a 2 percent decline in corporate earnings.

The reason why you have such a big number in financials is because of a low base from last year. We are expecting flattish earnings year-on-year if you exclude financials. Despite this 44 percent expectation, full-year number is just 11 percent.
Surendra Goyal, Head of Citi Research, Citi India

Corporate banks reported net losses and higher provisioning expenses in the year-ago period, the report said.

Aided by the financial sector, the earnings of S&P BSE Sensex and NSE Nifty 50 Index constituents, too, are expected to grow at 28 percent and 23 percent year-on-year, respectively, Citi said. Excluding the financial sector, according to the report, the growth may fall 4 percent and 2 percent year-on-year.

The growth is expected to remain weak for the second straight quarter for consumer discretionary and commodity sectors, while others (excluding financials) will see an 8-13 percent surge annually, it said.

Also, as mid-cap base effect fades, their earnings are expected to come on a par with large-cap peers, the report said. “The mid-cap universe has benefited from a low base over fourth quarter of FY18 and third quarter of FY19.”

Citi Research: Fourth Quarter Earnings Growth May Rely On Just One Sector

Citi’s Sectoral Outlook


  • Asset quality of this sector is set to improve further in the March quarter. Citi group projects its growth at 308 percent on a yearly basis.
  • Banks’ margins may remain stable on a quarterly basis despite tighter liquidity as MCLR hikes get passed through in loan pricing.
  • Retail non-bank lenders will continue to see a healthy loan growth.

Capital Goods

  • Industrials, or capital goods, are the “lone bright spot” in this season, the report said. The sector is set to witness over 20 percent growth, owing to decent top line or margin expectation.
  • But greater-than-expected impact on margins due to competitive pressures could be a downside risk.


“The fourth quarter will be more moderate than seen previously as we're forecasting a sequentially lower growth due to factors such as adverse seasonality and liquidity issues impacting distribution chains,” said Aditya Mathur, analyst at Citi Research, adding that Marico stands out in the pack due to low copra prices.

  • The volume growth trends may taper off in the fourth quarter of FY19 due to adverse seasonality, heightened competition in select segments, and a liquidity crisis looming over dealers and distributors.
  • A slower-than-forecast growth due to challenges in the market, especially in rural India, is a key risk.


  • Weaker-than-expected gross refining margin in the quarter is expected for Reliance Industries Ltd. and oil marketers. Citi Research projects a 2 percent growth for this sector.
  • Weaker marketing margins or lower inventory gains are some of the risks for the oil marketing companies.

Information Technology

Citi expects a steady quarter for the information technology sector despite the March quarter being seasonally weak. “We have had a good 6-9 months in terms of deal flows and growth rate. But the global macro environment is comparatively weaker and rupee tailwind benefit is no longer present so far this year,” said Goyal of Citi Research.

  • Overall constant currency revenue growth for large Indian software services providers is expected to be between 1 percent and 3 percent on a quarterly basis.
  • Growth in dollar terms is set to benefit from cross-currency tailwinds; 10-50 basis point growth expected.


Supply distributions in China could open up short-term opportunities for API (active pharmaceutical ingredient) companies, according to Prashant Nair, director and deputy head of India research, Citi India (Pharma).

  • This could turn out to be a good quarter for Indian pharmaceutical companies, led by big launches in the U.S., and cost cuts which may continue to shore up margins.
  • On the contrary, India growth could remain “sluggish” due to ongoing inventory rationalisation by most companies; the institutional/tender market is also likely to remain weak.

Real Estate

  • An improvement in liquidity after the NBFC crisis might alleviate the situation for this sector. Growth is projected at 11.1 percent for the quarter.
  • A higher cost of financing, however, could impact demand.


Cement makers exposed to the southern markets should benefit due to the prices hikes undertaken by them in the region, said Raashi Chopra, director of India research (Metals), Citi.

“Fourth quarter should also have cost benefits coming in like lower pet coke prices and freight costs,” said Chopra.

  • Lower-than-expected realisation, with discounts pushing volumes, and higher-than-expected costs could be the key downside risks.

Citi Disclaimers


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