Given the momentum of consumption demand and receding impact of goods and services tax (GST), India Inc.'s performance is poised to improve in the June quarter (Q1).
However, apart from the topline and bottomline figures, investors would also focus on cues about the sustainability of earnings, any change in trends, and emerging threats and opportunities. Here, we take a look at key issues in various sectors:
Automobiles: Following the robust monthly sales numbers, automobile manufacturers are expected to put up a good show, thanks to improving rural demand. However, fears of Brexit are back to haunt Tata Motors. So, investors would be closely watching commentary on the JLR business of Tata Motors Ltd.
Investors would also want to know whether increasing global protectionism has hurt auto ancillary firms with a foreign presence such as Motherson Sumi Ltd and Bharat Forge Ltd.
Other areas of interest would be market share gains and outlook on margins given rising input costs.
Banks: For banks, on the interest rate front there were two negative developments during the quarter.
One, there was a 50 basis points increase across the yield curve. One basis point is one hundredth of a percentage point. Two, rules were tightened in the valuation of state G-Sec instruments. Investors would be watching the impact of these changes on banks' mark-to-market provisions. Commentary on other resolution cases would be welcome now that the resolution of two large cases of Bhushan Steel and Electrosteel Steels has been completed.
As for NBFCs, investors should note that they will be reporting numbers in the Ind-AS format from the June quarter, so the reported financials may not be strictly comparable with analysts' estimates.
Construction: The June quarter is the strongest quarter for the sector. Since the National Highways Authority of India (NHAI) plans to award projects worth 8500-9000km during FY19, the focus would be on order inflow guidance for FY19. The majority of companies are sitting on a healthy order book, so pace of execution will be key.
Other issues of interest include their fund raising plans and leverage position.
Consumer goods: In the wake of input cost inflation, it would be interesting to see if companies finally start to pass on the burden by raising prices. Volume growth this time will partly be aided by a low base, due to the GST roll-out last year.
Rural demand had picked up in the March quarter as well and commentary on whether that has sustained is a key factor to watch out for.
Competitive intensity and GST-led market share gains, if any, are some other important triggers for the sector.
Information technology (IT): June is a seasonally strong quarter for most IT companies. The impact of sharp rupee depreciation seen during the quarter and lower H-1B visa applications on the margins of technology companies will be watched.
Investors in IT stocks usually focus on the annual revenue growth guidance by sector giants Infosys Ltd and HCL Technologies Ltd. According to analysts, green shoots of recovery in TCS Ltd's banking and financial services segment were cited in the previous quarter, commentary on that will be awaited.
Apart from that, client budgets for the rest of the year, deal-flow, pricing pressure, and growth in digital services are some other important cues.
Metals: In the backdrop of rising trade conflicts between China and US, concerns on global demand growth and a slowing Chinese economy have taken the front seat.
This has led to volatile price movements, making it difficult to discern a trend. Any commentary from company managements on this front will be watched for.
Domestic demand remains in good shape. Plans of companies who have acquired distressed steel assets will be assessed.
Pharmaceuticals: In the US generic market, the main factor to be watched for is whether pricing pressure has indeed turned lower and whether new launches are able to drive growth.
The favourable currency movement could act as a tailwind. Further updates on the quality/compliance front will be awaited.
Domestic pharmaceutical sales growth has picked up in the June quarter but a base effect may also be visible due to the GST roll-out a year ago.
Real estate: Investors would want to know the inventory levels in residential projects, especially in National Capital Region and Mumbai Metropolitan Region.
Commentary on new launches across segments would also be important.
Analysts caution of distortion in reported earnings of real estate companies due to adoption of Ind-AS 115 format.
Telecom: Competitive intensity remains high due to Reliance Jio Infocomm Ltd's price movements. Apart from the subscriber base, the outlook on average revenue per unit will be key.
Updates on Idea-Vodafone merger would be anticipated by investors.
Further, investors want to know the expected impact of Jio's GigaFiber and Giga set-top-box on the home broadband and direct-to-home business.
Capital goods: While a favourable base would aid profitability, but the key concern for investors remains the sluggish pick-up in private sector capex.
Some delayed orders in fiscal year 2018 are expected to materialize for industrial and capital goods companies and investors will track the commentary on this front.
In arrangement with HT Syndication | MINT