Profits from India’s top firms are expected to have swung back to growth in July-September from a decline in the previous quarter, though economic headwinds are likely to have kept the pace of growth sluggish.
The latest results are critical for investors, marking the first quarter since the rollout of the goods and services tax (GST) on July 1 and coming amid a wider retreat in share markets on investor concern about stocks being overvalued.
Forecasts compiled by Reuters show net profits are expected to rise 12.8% in the latest quarter for members of the main NSE index, known as Nifty, marking a recovery from the 1% fall in net profits in April-June.
That would be less than half the 33% increase posted in the January-March quarter and lag the 17.7% rise in October-December last year.
Profits are expected to be driven by energy and metals firms benefiting from stronger commodity prices, while telecoms are expected to post weak results due to aggressive competition. Drug makers profits are also likely to have suffered, mostly from regulatory challenges in the key U.S. market.
However, the impact of GST remains the biggest unknown for investors positioning themselves for the earnings season.
Bull run at risk
Uncertainty caused by companies rushing to prepare for the new tax and cutting production dented profits in the April-June quarter more than analysts had initially expected.
Fund managers now warn another disappointing set of results could hurt India’s recent bull run.
Nilesh Shah, MD at Kotak Mahindra Asset Management, said markets were pricing in a recovery in earnings in the next 3-5 quarters.
He said markets would correct if earnings don’t show a solid recovery.
Meanwhile, operating profits are expected to rise 11.5%, while revenues are expected to advance 6.5%.
