- The earnings of the Sensex companies are likely to grow by 22.2% year on year (yoy) and 2.4% quarter on quarter (qoq) in Q4FY2008.
- Excluding ONGC and DLF, the earnings are expected to grow by 16.2% yoy and 3.6% qoq. The estimated earnings growth is expected to be relatively much slower than the growth witnessed in the previous few quarters and indicates moderation in the overall growth momentum.
- The report card of banking and capital goods companies will undergo extensive scrutiny following the series of negative developments recently.
The expected 22.2% yoy growth would mainly be achieved on the back of the high growth in the oil & gas sector (76.2% yoy) and the telecom sector (34.9% yoy) while the automobile sector is expected to act as a drag on the Sensex' earnings. - The Q4FY2008 performance gains all the more important against the backdrop of a deterioration in the macro environment, ie soaring headline inflation, a dip in the industrial production during January 2008, lower automobile sales and losses from foreign exchange (forex) derivatives.
- Some of the sectors have been facing tough challenges: Cement (high fuel cost), fast moving consumer goods (FMCG; higher raw material cost) and capital goods (capacity constraints).
- The Reserve Bank of India (RBI) and the finance minister have taken cognisance of the fears of a slowdown. However, the macro situation does not offer easy solution for stimulating growth because inflation (7.4% as on March 29th) is already well above the RBI's target rate of 5%.
- On the positive side, the Union Budget has spelled out multiple measures to stimulate consumption and investments. For instance, the loan waiver scheme and tax slab restructuring are likely to give a major boost to consumption, though in the medium to longer term.
- Overall, the scenario looks healthy, though I anticipate further moderation in earnings growth. I would suggest my readers to stay invested.
Q4FY2008 earnings preview - Special Report
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