NEW DELHI: Forex gains, which were a key driver of positive surprises last quarter, will be less of a factor this quarter, as the rupee has appreciated by a modest 2% during the September 2007 quarter.
After a robust first quarter, Citigroup expects Sensex ex-oil earnings to rise by 21% in the second quarter. With base effect and slowing credit, trend of top line moderation is expected to continue and is expected at 13%. Margins should hold steady overall, despite challenges of wage inflation and currency appreciation for many sectors.
A liquidity surge after the Fed rate cut has driven a stunning 27% rise in the Sensex from lows just six weeks back. Positive earnings surprises will be key to hold up that momentum. The previous quarter’s earnings surprises, outside the capital goods sector, were mostly from forex gains and hence it did not drive any significant earnings revision. Earnings surprises are expected to remain on a slow track, though positive.
Leading sectors in terms of profit growth are likely to be telecom, media, brokerages, hotels, capital goods while sugar, textiles, metals, autos and pharma will likely be laggards this quarter.
The previous results season had seen well above expected profit growth, but much of the earnings surprise outside of capital goods came from forex gains and other one-offs. Not surprisingly, despite a strong June 2007 quarter, earnings upgrade momentum has been very muted and Sensex ex-oil earnings growth for fiscal 2008 and 2009 is still expected to be 16-17 %, says Citigroup.
With the rupee appreciating merely 2.1% versus the dollar in the September quarter (6.1% in the preceding quarter), forex gains will play a far smaller role in driving surprises this time around.
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