India Inc is in the midst of the quarterly earnings season and analysis of the results that have been announced thus far indicates that the growth momentum that began building up post September 2020 as the country unlocked has continued into the January-March quarter. However, the outlook for many sectors remains hazy amid the second wave of COVID-19, where daily new cases have hit record in recent weeks forcing many states to impose restrictions of varied degree.
As of Monday, 27 of the 50 companies that constitute the NSE Nifty index had reported their earnings. An analysis by Motilal Oswal Financial Services shows Nifty profits of these 27 companies rose 50 per cent year-on-year in the fourth quarter, while profit for 78 other companies was up 47 per cent. Sales growth of these companies has also averaged a good 17 per cent.
The growth in the quarter ended March 2021 was driven by two key reasons. The growth in the year ago quarter had been subdued as a strict nationwide lockdown was imposed towards the end of March 2020; several states had announced some restrictions days earlier. But, as the country began to unlock, growth across several sectors rebounded at a faster than expected pace, and that healthy demand recovery continued into the March quarter, noted Gautam Duggad, head of research—institutional equities at Motilal Oswal.
However, the road ahead, particularly in the first quarter of 2021-22 looks bumpy and uncertain as the second wave of the Covid pandemic has hit harder and many states have gone into some sort of lockdown, which will have an impact on demand.
“The advent of the second COVID wave has muddled sentiment and impaired the FY2022 earnings visibility. With multiple states entering into extended lockdowns and restrictions, we see downside risks to our FY2022 earnings estimates,” said Duggad.
Management commentaries, particularly, in banking and financial services, consumer and automobile sectors have turned cautious. Several automakers including market leaders Maruti Suzuki and Hero MotoCorp have shut down manufacturing plants this month in the wake of the rising COVID cases.
“We are facing not just similar times as last year, but actually much more challenging times as we can see from the numbers, the infections and the consequences that are happening and of course, more and more states are also going under lockdown,” Niranjan Gupta, chief financial officer at Hero MotoCorp, said in the recent conference call with investors.
Hindustan Unilever, the largest FMCG company in the country, also recently warned that consumption had slowed in a few cases in recent weeks and the lockdowns and restrictions could impact some categories.
“Restricted hours of operations at retail outlets have once again created uncertainty in the demand environment, especially for the first quarter. Furthermore, the recent commodity inflation would also weigh on earnings, leading us to cut our FY22 earnings per share estimates for most of the (consumer) companies,” said Duggad of Motilal Oswal.
The resurgence in COVID cases and lockdowns across various states has also impacted collection efficiency of banks in April, with some of the banks suggesting a 4-5 per cent drop in collections over March.
Software services companies, meanwhile, continue to report strong momentum on the back of large deal wins. Steel companies are also showing strong growth on the back of higher prices for the metal.
“While the management of Tier 1 (technology) companies guided for conservative double-digit revenue growth for FY22 (low teens in the case of Infosys), we believe this would increase over the course of the year, given the deal pipeline remains strong,” added Duggad.
Barring technology firms and metals companies, how things pan out from here for corporate India will depend on how and when the second wave of COVID is controlled, as this will be crucial in lifting of the restrictions announced by various states, and in turn, consumer demand.
“The interplay of the resurgence in COVID cases and the pace of vaccination would decide the trajectory of economic recovery going forward,” said Duggal.
