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India’s earnings’ trajectory is steadying out. Sensex (ex-Oil) growth should be 12 per cent (a slight step up over Q4 FY12) reflecting a slowing, but stabilising economy.
That said, we expect broader earnings (Citi Univ ex-energy) higher at 15 per cent, margins to move up, and better balanced earnings across sectors. While the GDP outlook continues to look more down than up, earnings are turning out to be a better story — albeit only slightly.
India Inc’s rising focus on profits and shift away from growth/ market share should show. Aggregate margins should continue to rise (+63 bps q-o-q); topline growth should continue to moderate (+16 per cent y-o-y) as demand slows but profit discipline rises. The gap between EBIDTA and PAT margins should also continue to rise increasingly reflecting balance sheet pain in the P&L (interest/ currency/ provisioning pressures).
While an uptrending market raises the risk of inflating expectations, we do not see aggregate earnings providing decisive direction.
There will always be bottom-up hits (Tata Steel, Maruti and Cairn) and misses (Bharti, Infosys, M&M and Hindalco), but the results should reflect increasing corporate discipline rather than market direction.
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