‘Weak currency will be the key driver of earnings growth’

Despite shrinking factory output in February and plunging car sales as well as widening trade deficit in March, the fourth quarter (Q4) earnings estimates by three brokerages indicate a gradual revival of the economy.

“Revenue growth of Nifty companies is expected to grow year-on-year at 14.9 per cent for the fourth quarter of 2013-14, better than the growth seen in the third quarter of the year. Moreover, the profit after tax growth of the Nifty companies is estimated to be at 7.9 per cent year-on-year,” said Prabhudas Lilladher in a report.

“The fourth quarter earnings for Sensex companies will grow 13 per cent year-on-year, continuing the trend of the last couple of quarters. Weak currency will be the key driver of earnings growth. With this, we expect 2013-14 Sensex earning per share to grow 12 per cent, down 1 per cent,” said Motilal Oswal Securities in its fourth quarter earnings estimates.

“India has been seeing early signs of improvement in various macro-economic parameters. The twin deficit problems have been addressed. Various measures taken by UPA-II have led to a gradual improvement in the industrial outlook. Inflation seems to be finally coming under control,” the report added.

Similarly, Religare Institutional Research in its Q4 preview said, “We expect another quarter (third) of double-digit revenue growth for Sensex (ex-oil) at 13.5 per cent year-on-year (18.9 per cent in Q3). However, aggregate profits are likely to drop to 3.2 per cent due to higher input costs and a weak currency”.

In a report on how the outcome of the general elections would decide the direction of the current upswing, Edelweiss Securities said: “In the past few months, India has seen remarkable progress on balance of payments front, with capital flows returning and rupee stabilising. Fiscal prudence has also returned after years of profligacy. This has helped stabilise the economy. However, signs of growth revival are few and far between.”

“The key obstacle in cyclical revival is elevated inflation. Another immediate challenge for the new government would be to carry forward the process of fiscal consolidation amidst depressed economy,” the report said.

The real economy would turnaround only gradually depending on how effectively the new government meets the challenges of inflation and fiscal deficit, it added.

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