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Q4 FY19 Earning Preview – April 2019

Corporate Financials to lead earnings growth

Q4 FY19 earnings is expected to see a strong pick up YoY driven by favourable base and recovery in the financial sector (corporate financials reported sharply higher provisioning expenses and recorded net losses during Q4 FY18). Sensex companies top-line and bottom-line is expected to grow at 7% and 22% respectively. Ex-corporate financials earnings growth for Sensex companies is expected to moderate meaningfully.

Sectors expected to aid earnings growth:

  • Financials - strong advances and improvement in asset quality further aided by a lower base in Q4 FY18
  • While consumer staples may witness margin expansion but volume growth may see moderation (basis recent weak management commentary from large FMCG companies, lowers expectations)
  • Oil & gas sector is likely to report flattish top-line but reasonable EBITDA growth with OMCs reporting better performance on high marketing margins
  • Cement (pricing improvement), capital goods (improving order intake) & power (higher PLF) are likely to report double-digit growth
  • IT is likely to post double-digit profit growth, aided by momentum in deal activity
  • While Pharma sector on an aggregate basis is expected to see a moderate recovery in US sales led by currency tailwinds, but at individual company level earnings might witness volatility.

Sectors expected to drag earnings growth:

  • Auto - subdued sales volumes and margin compression
  • Metals & mining - decline in realizations
  • Telecom – continue to see revenue pressure due to intense competition

Outlook for FY20

FY19 is expected to be another year of significant downgrades in aggregate earnings. Earnings have witnessed a sharp downgrade trend through this fiscal year – NIFTY FY19E earnings growth forecast has slipped from 20%+ YoY in Apr’18 to about 11%. We believe FY20E Bloomberg Consensus growth estimates of about 22% YoY are optimistic still, given risks to global growth and weak domestic consumption. We expect net profits of the Indian market (Nifty-50 Index) to grow in mid-teens during FY20 primarily led by turnaround in corporate financials. Financials continue to be the major drivers of the earnings forecasts.