If the markets have to sustain the current levels and move up, it will need to have more confidence in the medium-to-long term growth rates of corporate India, says the brokerage

Expectations from the quarterly results for corporate houses are not very high which may act as a cushion for the markets, according to Kotak Securities' preview of quarterly results and the possible impact on the stock market. If the markets have to sustain the current levels and move up, it will need to have more confidence in the medium-to-long term growth rates of corporate India, says the report. Also, the above-mentioned concerns have to be effectively and immediately addressed. The room for disappointment is very limited. Disappointment in earnings or on future outlook may result in corresponding specific corrections.


Among the prominent sectors, Kotak noted, automobile players reported weak set of volumes in 1QFY13 (first quarter of the financial year 2012-13). Volumes during 1QFY13 remained under pressure on account of weak macro factors. Slowing economy and interest rates have turned the sentiments negative for automobile demand. Further, events like steep hike in fuel prices and weak beginning to the monsoons added pressure on demand.

During Q1FY13, core earnings for banks and NBFCs (non-banking finance companies) are expected to grow 19.2% year-on-year (YoY), while net income is expected to register a strong growth (35.7% YoY), mainly on back of base effect (SBI reported subdued earnings during Q1FY12). The PSU banks are likely to grow faster at 47.7% (ex-SBI: 17.4%), while private sector banks are likely to grow at 28.4%. During the same period, NBFCs are likely to witness moderate growth in net income (13.2%) due to subdued YoY growth for LIC Housing (-1.1% YoY) and STFC (-6.3%). Credit growth came at 17.8% YoY (as on 15 June 2012), largely stable during Q1FY13, although it remained lower than 20.9% growth witnessed a year ago. During the same period, deposit mobilization marginally improved to 14.4% YoY (as on 15 June 2012) despite subdued performance on demand deposits (decline of 10.2% YTD). The above data are figures are from the Kotak Securities report on the quarterly results preview.

In the June-ending quarter, the BSE Capital Goods index remained flat versus a similar performance of the Sensex. While the market sentiment has improved in recent weeks (index up 9% MTD), it is yet to reflect in broad economic data points. We note that the IIP-based Capital Goods Index was down 16.3% for the month of April 2012.

Even as the government remains committed to address the issue of shortage of coal, there is no short-term solution to the problem. NTPC has awarded the supercritical boiler orders to BGR Energy for Meja and Solapur. Mahagenco has recently scrapped a gas-based power generation project for failure to secure fuel supply.

In the cement sector, demand during the beginning of Q1FY13 was impacted by the sand mining ban in states like Andhra Pradesh, Punjab and Haryana and this along with labour shortage had impacted the construction activities. However, average cement prices during Q1FY13 have witnessed an improvement on a sequential basis mainly led by strong prices seen during April and June. Though prices witnessed a decline during May 2012 led by sand and labour shortage, they subsequently improved in June 2012 due to improved availability of sand and delayed onset of the monsoons. Cost pressures continue to remain high and the full impact of hike in railway freight rates and excise duty would get reflected during Q1FY13. Along with this, rupee depreciation during the quarter would also impact companies relying on imported coal.

Thus, the corporate sector, according to the Kotak Securities report, shows weakness on several environmental and fundamental factors leading to low expectations in quarterly results. This is likely to be a dampener for investors in the stock market for much of the year 2012-13.