Indian companies forecast faster profit growth despite global risks: Report

Indian companies are expected to report faster profit growth in the September quarter, although performance is likely to remain uneven across sectors because of global and domestic headwinds, according to five brokerages.

Foreign investors have pulled money out of Indian stocks at a record pace, pushing the benchmark Nifty 50 towards its worst year in 15 years. A weakest-in-a-decade monsoon has also raised concerns over rural demand, while the Middle East conflict has fuelled global inflation concerns and increased the risk premium on emerging market economies and equity markets.

However, analysts expect several factors to support corporate earnings.

“resilient domestic demand in Q2, early festive inventory build-up, favourable pricing in selective commodity-linked sectors should continue to support earnings growth,” said J.P.Morgan analysts led by Rajiv Batra.

Nifty 50 companies are expected to report an average net profit increase of about 20 per cent year-on-year, based on brokerage estimates. In April-June, net profit growth reached a 10-quarter high of 18 per cent after three consecutive quarters of low-single-digit growth.

Motilal Oswal is the most optimistic among the brokerages, forecasting a 27 per cent increase in net profit. That would be the fastest growth in 17 quarters.

The brokerage is bullish on automobiles and new-age technology platforms, including Meesho, PhysicsWallah, Mahindra & Mahindra and TVS Motor. Its outlook is based on structural growth trends, recovering discretionary demand and expanding product portfolios.

PhillipCapital has a more modest estimate, forecasting a 13 per cent rise in profits because of margin pressure and a less favourable mix outside the oil and gas sector.

Tata Consultancy Services will kickstart the earnings season later in the day.

Sector outlook

Financial companies are expected to be the main earnings anchor, with analysts pointing to healthy loan growth, lower credit costs and fewer loans turning bad at banks.

“Following the Reserve Bank of India’s rate hike and its shift to a ‘calibrated tightening’ stance, we expect large private banks to see further earnings upgrades,” said J.P.Morgan.

Several brokerages expect ICICI Bank, State Bank of India and Bajaj Finance to stand out in the quarter.

The effects of the US-Iran war, now in its eighth month, are expected to be felt sharply across automobiles, energy and consumer goods. Oil from the region has struggled to reach India, the world’s third-largest crude importer, increasing costs.

Automobile retail sales rose during the quarter, helped by an improved product mix, pricing and tax cuts.

However, Kotak Institutional Equities expects commodity-related headwinds to weigh on operating margins.

Higher crude prices are expected to benefit upstream and oil-to-chemicals companies while putting pressure on oil marketing firms.

Reliance Industries, the oil-to-telecom conglomerate and operator of the world’s largest refining complex, is expected to benefit from higher crude prices and offset relatively softer retail performance.

IT demand may remain subdued as clients delay non-essential spending amid pricing pressure driven by artificial intelligence.

“We expect management commentaries to reflect the multi-pronged challenges the sector faces — geopolitics, weak macro and AI threat,” Nuvama said.

(With inputs from Reuters)