by Suhani Adilabadkar
As the fourth quarter results have started pouring in, temperatures have risen in the markets due to an expanding fiscal deficit and soaring oil prices. Though analysts had been forecasting a better financial landscape for the Indian economy in the fourth quarter, the price of crude has emerged as an irritant with $80 per barrel a near-term reality, upsetting quite a few prized valuations. In this backdrop, fourth quarter results are expected to provide some respite from our macro concerns.
Goa Carbon was one of the first companies to report fourth quarter results ,and the results came in on a positive note. The company manufactures and markets calcined petroleum coke and is a part of the Dempo group. The firm reported YoY growth of 133% and 110% for net profits and revenue. The early results in the earning season has been mainly IT & private sector banks with Infosys, TCS, IndusInd and HDFC Bank, the early heavyweights setting the tone in earnings momentum.
IT heavyweights – One hit and the usual miss
Infosys reported lackluster and subdued results in the March quarter, with lower guidance and fewer new clients. Top management has seen a churn over the last few years, which has impacted both investor and customer confidence leading to lower profitability and poor margins. TCS on the other hand has consolidated its top position and exited the fourth quarter in flying colors. The company reported 8% revenue growth and 5% rise in PAT in contrast with Infosys moving at 6% revenue growth and 2% jump in PAT YOY.
Operating margins were also higher for TCS at 25.40% while Infosys reported 25.30% for March quarter FY18. in the midcap space Mindtree and Cyient reported strong performances YOY.
The Banking Conundrum
Banking results are keenly awaited by analysts to assess the recent structural and ethical issues impacting the industry as a whole. IndusInd Bank has been the first one to report its quarterly results followed by HDFC Bank, Kotak Mahindra & Yes Bank. IndusInd has lived up to its expectations with net profit growth of 27%, Net Interest Income (NII) at 20%, stable NIM (Net Interest Margin) at 3.97% and credit growth of 28% YOY. DCB Bank, also reported strong performance with Net Profit, NII & NIM at 21%, 20% & 4.16% respectively on yearly terms. What is to be seen is how Private
Sector Banking driven by retails loans, deals with higher regulator scrutiny, which has pushed them to tighten up their loan approval operations constricting their credit growth in the coming quarters.
Cement & Housing Finance deliver
ACC & Shree Digvijay Cement have posted strong numbers for the cement sector. ACC reported 18% YOY growth in PAT whereas Shree Digvijay Cement’s profit growth was impressive with a 16 times jump YOY, which has more than doubled on quarterly basis. Indiabulls Housing Finance and Gruh Finance also reported strong financials both yearly and quarterly, setting the momentum for the rising housing sector.
The cement sector is expected to perform well due to low base effect and would be driven by affordable housing, rural housing and infrastructure investments. Housing Finance companies are competing with banks in the housing sector and have been increasing their share over the years, which now stands around 39% of the market. Both these sectors are highly cyclical in nature and depend on growth of the domestic economy fueling sentiment for long term investment.
Oil prices play spoilsort
Companies like Muthoot Finance, Mahindra CIE, Tata Sponge & Iron, GM Breweries, Bharat Seats Ltd have also reported stellar performances making analysts and investors optimistic for their respective industries and their forthcoming results. Domestic Institutional Investors and retail investors have retained their positive stance for the fourth quarter results so far, as confirmed in the last several trading sessions.
On the other hand, FII investors are becoming more cautious about the Indian economy as an underperforming asset in their portfolio owing to global uncertainties and rising crude prices is impacting current & fiscal deficit. But even with the soaring crude, domestic investors are continuing to buy.
Suhani Adilabadkar is a Research Analyst registered with SEBI ((INH200003240)) She has done PGDBA (Finance), MS (Finance) and a Fellowship from Insurance Institute of India. She maintains a blog at oasisfundamentals.blogspot.in.
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