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Aarati Krishnan

BL Research Bureau Investors should expect no fireworks from the September quarter results that will be unveiled over the next few weeks.

Take the case of aluminium major – Hindalco – whose fortunes are tied to global aluminium prices. Even after bouncing off their lows, prices for the metal over the last three months have ruled about 30 per cent below their levels last year. That means lower sales and profits for Hindalco.

Lower commodity prices are one reason why aggregate profits for the Sensex companies may fall and sales remain flat, for the just-concluded September quarter.

However, divergence between sectors is expected to be quite sharp this quarter. Automobiles, cement, FMCGs and construction are likely to put up strong double-digit profit growth, partly offsetting steep profit declines in metals and realty. An expansion in profit margins for non-commodity companies is also likely, as they reap the full benefits of the fall in input costs relative to last year.

Leading Indian brokerages have forecast that net profits for the Sensex companies would shrink or at best stay flat this September quarter, compared to the same period last year. The most optimistic of them expect total profits for the Sensex basket to inch up one per cent; the most pessimistic expect a 16.5 per cent profit fall.

Profits for Sensex companies declined one per cent in the preceding June quarter. Forecasts for the aggregate sales of Sensex companies are more varied — ranging from a 9 per cent decline to a 7 per cent growth.

Helped by reviving sales and falling input costs, automobile and cement companies may turn in the best growth rates this quarter. Metal and real estate companies are expected to show the biggest profit declines largely due to the high base of last year. However, both sectors are expected to show a pick-up compared to June — metals on better prices and realty companies on returning residential demand.

Software majors too are expected to put up a better sequential show, helped by improving volumes. Some brokerages expect telecom and pharma companies within the Sensex basket to report profit falls, owing to pressure on tariffs in the case of telecom and lower “exclusive” drug sales for the pharma majors.

What is interesting is that most brokerages, while retaining cautious forecasts for this year, are optimistic that India Inc’s profits will grow at a fast clip next year and are busy ‘upgrading’ their 2010-11 forecasts. Contributions likely to flow in from Reliance’s gas sales, the rebound in the rural economy from a drought year and better realisations for metal companies are the reasons cited for these upgrades.

“Our analysis of past drought years suggests a strong economic and stock market recovery in the year immediately succeeding the drought year. In FY11, we already expect earnings growth of 26 per cent,” said Motilal Oswal Securities, while recently nudging up its 2010-11 Sensex profit estimate.

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