April Has Been An Encouraging Month On Earnings

Opinion makers said the real impact of demonetisation on earnings would be felt in Q4.

Companies constituting about 40 percent of the Nifty weightage have declared numbers and the verdict is positive . (Photo: Reuters)

"Let the bat do the talking" would have been a silent bull's thought when a case was made for the disappointing January-March (Q4FY17) earnings from India Inc, following demonetisation.

Remember, there was a large section of opinion makers who had said that the real impact of demonetisation on earnings would be felt in Q4, and that would drag the overall earnings substantially lower. Well, the month of April has spoken, and in favour of positive earnings.

Companies constituting about 40 percent of the Nifty weightage have declared numbers and the verdict so far is – positive.

Let’s break that up.

TCS And IndusInd Miss The Mark

There have been just a few ‘misses’. The category includes: a specific case-led miss from IndusInd Bank on account of a cement company bad loan, and an expected blemish from TCS.

These are factors that are unlikely to be a trend for those companies.

Battling Headwinds And Staying Steady

HDFC Bank and Infosys were largely in-line. That’s the lion’s share of the 20.79 percent of Nifty weightage being in-line, although 60 percent of the index is yet to report. Kotak Mahindra Bank was on a par with expectations as well, with a minor 17 basis points uptick in gross net non-performing assets in Q4.

Sure, HDFC Bank and Kotak Mahindra Bank have almost never disappointed, and this quarter has been no different.

However, in a quarter where people suspected that asset quality could deteriorate for most banks, it is heartening to see that the two best banks by asset quality history have held out well.

The street’s view on the information technology space has been so mellow, that a moderate performance in the quarter allowed these companies to meet expectations. The jarring note in this story is that the forward guidance from Infosys of 6.1 percent to 8.1 percent for FY18; and Wipro’s projected a range of 2 percent de-growth to zero growth for Q1FY18 is not encouraging. Hence, while they have been in line, one would expect some soft forecasts from these companies in the next quarter.

The market has digested a small margin miss from the country’s largest automaker Maruti Suzuki as acceptable, offset by appreciable volume growth. Analysts see the company continuing to deliver on sales growth.

Reliance: The Big Outperformer

The category which beat estimates is largely led by Reliance Industries, which comfortably outperformed forecasts. Gross refining margins continue to remain robust, but the street was a touch disappointed that the detailed results of Reliance Jio may not be out in Q1FY18 either.

Jio continues to drive excitement and suspense at the same time.

It is possible that consumer, telecom, and public sector bank companies play spoilsport, and we will analyse those numbers as they break. For now, April seems to have worked well. The street will hope fervently for May to do an encore, to justify the 17.4 times one year forward price-to-earnings that the index currently trades at.

(This story was originally published in BloombergQuint)