According to brokerages, IT, financials and pharma would come out with strong numbers during the first quarter of FY13 while realty, metals and mining would continue lag behind

Non-commodities, especially information technology (IT), financials and pharma are the sectors that would come out with strong results during the first quarter of the current fiscal, say brokerages. While the previous quarter (Q4 FY12) was dominated by deceleration in growth, moderating core inflation, sharp depreciation of the Indian rupee and a correction in crude oil prices, the direction of the markets would depend on how global events unfold especially inflows and domestic growth momentum, the brokerages said.

"With the RBI (Reserve Bank of India) clearly emphasizing the need for fiscal consolidation before embarking on monetary easing, the timing and magnitude of future rate actions would depend on how the growth-inflation dynamic pans out. We believe the pace and magnitude of the RBI's rate actions would be critical to revive business sentiment and, in turn, the investment cycle," said Infrastructure Development Finance Company (IDFC) in a report.

For the last nearly 18 months, the Indian economy and markets have been groping through intensifying darkness and concerns, culminating in the cradle of pessimism. This sense of gloom and doom was led and reflected in by several indicators-growth plunged, inflation peaked, interest rates climbed, fiscal slipped, trade situation worsened, and rupee nose-dived. All of the above were aggravated by a policy paralysis.

Source: IDFC

IDFC expects Sensex earnings growth to come in at 11.5% year-on-year (y-o-y) in Q1 FY13, as against 16.7% in the previous quarter. "Growth would be a more tepid at around 7.1% y-o-y ex SBI (higher earnings due to a low base). Non-commodities are expected to report strong numbers, led by IT services (45% y-o-y), pharma (25% y-o-y) and financials (48% y-o-y). Earnings of commodities are likely to contract by 20% y-o-y. Companies expected to clock strong bottomline growth are Tata Motors (37% y-o-y), Infosys Technologies (49% y-o-y), TCS (41% y-o-y), ICICI Bank (31% y-o-y) and SBI (133% y-o-y)," IDFC said.

Result expectations for Q1FY13, excluding financials and oil, indicate some moderation in aggregate sales growth at 19% against 19.6% in Q4FY12 and APAT growth of 9.1% y-o-y against 11.1% in Q4FY12, said Emkay Global Financial Services. According to the brokerage, strong sales growth is likely to come from IT and pharma sectors, which have benefited from depreciation of rupee and both these sectors are likely to post sales growth of around 32%-33%.

"Sales for mid-cap and small-cap companies are expected to grow at 21.9% and 15.5% while their APAT are expected to contract by 2.5% and 4.8%, respectively. Outside of Financial and oil sectors, robust APAT expansion is expected for autos (13% y-o-y), consumers (22%), IT (36%) and pharma (45%).  Stress is likely to be visible markedly in agri inputs (-15%), engineering and capital goods (5% y-o-y), metals & mining (-23%) and real estate (-17%)," Emkay Global said.

ICICI Securities expects few sectors like automobiles, IT, FMCG and oil and gas to perform well across all parameters during the first quarter of current fiscal. "On the negative side, we expect capex linked sectors like capital goods, infrastructure, power to report subdued results due to weak execution, high raw material and borrowing costs and stretched working capital cycles," the brokerage said.

"On the PAT front, we anticipate 7.8% y-o-y growth supported by improved profitability from the oil & gas sector. Ex-oil & gas, we project our coverage universe profitability declining by 4.0% y-o-y against flattish bottomline in Q4FY12 due to higher interest costs. The slower bottomline growth is also likely to be on account of higher mark-to-market (MTM) losses following rupee depreciation against the US dollar at about 7.5% quarter on quarter (q-o-q) and 20.8% y-o-y, ICICI Securities said.

"With the earnings downgrade cycle at its end, possible monetary easing ahead and supportive valuations, we see limited downside in markets from here, but upsides would be a function of clarity on oil price direction and reforms," says Motilal Oswal Securities.


"Indian markets remained flat in 1QFY13. We believe that a bulk of the earnings downgrades (3% downgrade in FY13 earnings) is now behind. Monetary easing has begun with RBI surprising the markets thrice with the CRR/Repo rate cuts. Valuations remain below historical averages (rolling 12-month forward PE of 13.8 v/s 10-year average of 14.6x). We see limited downside in markets from here, but upsides would be a function of clarity on either of the catalysts playing out," the brokerage said.

According to Prabhudas Lilladher Pvt Ltd, headwinds in the form of slowing demand, high interest rates and extremely volatile currency to adversely impact results. "Revenue growth of Nifty companies is expected to fall to a two-and-a-half year low of just 12.2% y-o-y (the previous time it had fallen lower than this was in Q3FY10 at 10.5% y-o-y). Revenue, excluding companies in the oil & gas sector, is expected to rise at 15.3% y-o-y, a nine-quarter low (the previous low was in Q4FY10 at 8.8% y-o-y). Overall net profit (PAT) of Nifty companies would lag the revenue growth and rise by 10.8% y-o-y," the brokerage said.

Kisan Ratilal Choksey Shares and Securities Pvt Ltd (KR Choksey), in a report said that macro slowdown concerns are reflecting in the topline which is expected to grow only by 12.2% y-o-y however EBITDA margin and net profit margin are expected to improve supported by auto (led by operating leverage), banking and IT (primarily assisted by the rupee depreciation against the dollar) in Q1FY13. Other sectors excluding auto, BFSI and IT are witnessing pressure at operating and PAT level due to stiff competition which impacts their ability to fully pass on increase in input prices, it added.
 
"Macroeconomic variables such as GDP growth, industrial production, credit growth, corporate earnings are pointing broad based economic slowdown and all time low investment activity. We believe falling commodity prices; speed up reform process and lower interest rate cycle should revive investments and moderate inflation going forward. Considering the recent trend in growth and inflation, we believe RBI would focus to stimulate growth than anchoring inflation in coming monetary policy review," said KR Choksey in its report