Expectations from the results are not very high, in our view, which may act as a cushion for the markets
We expect stocks under our coverage (ex-banking/NBFCs) to report revenue growth of about 17.8 per cent on a year-on-year basis. Among sectors, Capital Goods, IT and Logistics are expected to propel this growth. Revenues of IT companies are expected to be driven by the sharp rupee depreciation. Higher execution levels should drive revenues of Capital Goods companies. We will watch our for execution issues, if any, in Construction and Capital Goods sectors.
For banks/NBFCs, net interest income is expected to register a growth of 19.2 per cent. The credit growth came in at 17.8 per cent YoY (as on June 15, 2012), largely stable during Q1FY13. During the same period, deposit mobilisation marginally improved to 14.4 per cent YoY (as on June 15, 2012) despite subdued performance on demand deposits (decline of 10.2 per cent year to date).
We expect marginal compression in NIM (5-10 bps QoQ) during Q1FY13, as banks are almost through with the last leg of deposit re-pricing. We believe the full impact of tight liquidity environment which led to spike in wholesale deposit rates during the end of Q4FY12 could be reflected in Q1FY13.
Margins are expected to be lower for our coverage universe (ex-banking/NBFCs) Ebidta margins for the sectors under our coverage are expected to be lower on a YoY basis. Except for IT and Power, other sectors will likely report lower margins YoY.
The pressure on margins is due to relatively lower revenue growth, higher raw material prices (largely because of Rupee depreciation) and higher fuel costs, which companies have not been able to pass on fully. For IT, margins are expected to be higher, largely due to the sharp depreciation of rupee v/s various currencies.
As far as banks are concerned, pre-provisioning profits are expected to rise by about 19.3 per cent compared with a 18.9 per cent rise in NIIs. Banks are likely to report write-back on their investment book as bond yields have come down during Q1FY13.
We also expect restructured book to rise especially on corporate book side as there has been large addition to the CDR in recent times, translating into higher credit costs. At the same time, banks are likely to report higher recovery/up-gradation as they are already through with the transition exercise. NBFCs are expected to report a growth of about 13% in pre-provisioning profits.
While 1QFY13 results will be important, the focus has been and is expected to be on
some of the other pressing concerns. Domestically, we will focus hard on the order bookings of capital goods and construction companies. The past few quarters have seen a slowdown in order flows and the same is largely expected to have continued in 1QFY13. We will also keenly hear the management comments on any momentum in decision - making and order - flows for these companies.
Inflation and the increase in interest rates will remain a focus point for the markets.
To that extent, results of debt heavy companies will be watched with caution and so also the results of all rate sensitive sectors, we understand.
While global commodity prices have moderated a bit towards the end of 1QFY13,
further moderation is desirable. However, increase in the commodity prices from
these levels may keep margins of corporate India under pressure, if the increases are
not fully passed on. Any lingering impact may dampen sentiments.
We will also closely track the management comments on the impact of the global
economic issues on client decisions and budgets. This will be more important for the
prospects of the IT sector.
Markets have been very volatile but have remained in a band since the past few months due to the global economic concerns and also domestic issues - scams, lack of decision making and high inflation.
Expectations from the results are not very high, in our view, which may act as a cushion for the markets. We opine that, 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. Also, the above-mentioned concerns have to be effectively and immediately addressed.
The room for disappointment is very limited, in our view. Disappointment in earnings or on future outlook may result in corresponding specific corrections.