Q3 Earnings Preview: India Inc. May Face Another Tough Quarter As Slowdown Persists
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Q3 Earnings Preview: India Inc. May Face Another Tough Quarter As Slowdown Persists

Most analysts expect India Inc.’s earnings, excluding financials, to decline in the quarter ended December as demand remained weak amid a slowing economy.

While brokerage Motilal Oswal expects profit before tax of Nifty 50 companies, excluding financials, to decline 5 percent over last year, Citi Research estimates the profit after tax to decline 7.6 percent. Bank of America Securities, too, expects profit after tax of Sensex constituents, excluding financials, to drop 2 percent year-on-year.

The Nifty 50 companies will announce their results for the third quarter starting with Infosys Ltd. on Jan. 10. Avenue Supermarts Ltd. will follow on Jan. 11.

The third quarter is likely to be “soft”, according to Edelweiss Securities. “Overall demand remains weak with almost all sectors, barring banks, estimated to post single-digit growth in top line,” the brokerage said in its quarterly preview report. “Auto, oil marketing companies, power, corporate banks may post a strong third quarter, while there may be weakness in consumer, IT and energy sectors.”

Agreed Gautam Duggad, head of research (institutional equities) at Motilal Oswal. It will be another “modest quarter of earnings”. While tax cuts may provide some cheer, he said in a report, growth may be led by autos and consumer-focused companies.

Watch: How India Inc. is likely to fare in Q3

Corporate tax cuts, according to the brokerage, have prevented a further slide in earnings estimates. “The government and the Reserve Bank of India have taken some steps to revive growth, the effect of which will be visible with a lag,” it said. “The forthcoming budget will be a crucial policy event with the market focus on—a potential near-term demand-booster from the government and the contours of fiscal deficit arithmetic.”

The forecast of muted earnings comes after the number of index constituents that met or beat estimates for operating income jumped to the highest in three quarters in July-September period, aided by tax cuts.

The Nifty companies are reviewed based on their operating income that excludes one-offs, including the impact of corporate tax rate cuts. BloombergQuint has been tracking the estimates-versus-performance data of Nifty 50 stocks since the second quarter of 2016-17.

Also read: Q3 Earnings Preview: Why Oil Marketers May Post Yet Another Muted Quarter

Also read: Q3 Results Preview: What Analysts Expect From Indian IT Companies

The rural demand remained subdued due to slowdown and festive season failed to bring any cheer, according to Amnish Aggarwal, head of research at Prabhudas Lilladher. Also, various government stimuli have failed to lift consumption so far, he said in a note. “The third quarter will also show impact of CAA (Citizenship Amendment Act) protests-led economic disruptions.”

The brokerage, however, awaits “green shoots” and expects growth will be led by banks, autos, agri and cement companies. Besides, rural demand may see a small revival from fourth quarter, the note said.

According to Antique Broking, metals are a “key drag”, while financials, agrochemical, fast-moving consumer goods makers, consumer durables, cement and industrials are “key contributors” to third quarter earnings. “We expect Nifty 50 to report a robust earnings growth of 0.7 percent (ex-financial) and 8.9 percent (ex-financial and commodities).”

Also read: BQ Survey | Third Quarter May Be Even Worse For FMCG Companies

Here’s a sector-wise analysis on how India Inc. is expected to perform in Q3 2019-20.


Expectation: Good Quarter

  • Good start to the rabi season to drive growth.
  • Domestic-focused companies to fare better than export-oriented firms.


Expectation: Good Quarter

  • Inventory clean-up to aid top line of automakers.
  • But higher discounts may impact margins.


Expectation: Weak Quarter

  • Higher discounts to impact yields.
  • Higher crude prices may impact financials.


Expectation: Good Quarter

  • Debt resolutions under the National Company Law Tribunal to aid financials and improve asset quality.
  • Loan growth will remain muted for many lenders.

Non-Bank Lenders

Expectation: Weak Quarter

  • Non-bank financial companies will continue to face slowdown pressure in domestic markets.
  • Weakness in the housing sector will weigh on home financiers.
  • Higher gold prices will aid gold finance companies.

Capital Goods

Expectation: Weak Quarter

  • Slowing economy to hurt domestic demand.
  • Sluggish demand from export markets may also impact financials.
  • State elections affecting spending in infrastructure projects.


Expectation: Good Quarter

  • Higher realisations and lower costs to boost earnings of cement makers.
  • Muted demand in real estate sector to impact volumes.

Fast-Moving Consumer Goods

Expectation: Weak Quarter

  • Demand failed to revive in rural and urban areas during festive season.
  • Third-quarter updates by consumer goods makers indicate that demand is yet to recover amid consumption slowdown.
  • Volume growth is expected to be in low-to-mid-single digits across companies.

Oil & Gas

Expectation: Weak Quarter

  • Lower gas prices to hurt earnings of upstream companies.
  • Earnings of oil marketing companies to take a hit due to a fall in refining and marketing margins.
  • City gas distributors to report strong volume growth.

Information Technology

Expectation: Good Quarter

  • Cross-currency tailwinds to aid growth of tech firms in the seasonally weak quarter.
  • Furloughs to partially hinder margin recovery.


Expectation: Weak Quarter

  • Advertisement and subscription trends remain muted.
  • Weak run at box office will impact exhibition business.


Expectation: Weak Quarter

  • Lower prices of base metals to weigh on earnings.
  • Ferrous spreads expected to stay subdued.
  • Lower LME prices may impact margin of non-ferrous firms.


Expectation: Weak Quarter

  • Domestic companies will continue to fare better than exporters.
  • Adverse U.S. FDA actions and poor pricing to impact exporters.
  • Multinationals will continue to outperform, aided by new launches.


Expectation: Good Quarter

  • Tariff hikes to aid average revenue per user, leading to better earnings of telecom service providers.
  • Strong 4G subscriber additions to also aid financials.


Expectation: Weak Quarter

  • Poor industrial activity takes a toll on demand for power companies.

(The reasons have been compiled from the research reports of Prabhudas Lilladhar, IDBI Capital, Edelweiss Securities, Emkay Global, Antique Broking and Motilal Oswal, among others.)

Also read: Domestic Pharma Sales Slowed In December After A Strong November

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