Moneycontrol Pro Panorama | A rollercoaster earnings season

Expectations for this earnings season remain subdued.

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As the earnings season for the December 2024 quarter approaches, the atmosphere in the market is tinged with caution. Following a disappointing performance by Corporate India in the September quarter, where many companies fell short of expectations, investor sentiment has soured.

This downturn has been exacerbated by significant outflows from foreign portfolio investors (FPIs), leading to a decline in market indices from their peaks.

Despite this backdrop of pessimism, analysts are keen to explore potential pockets of resilience across various sectors.

The Oil and Gas sector, for instance, is anticipated to deliver mixed results. While oil marketing companies (OMCs) and standalone refiners are expected to show sequential improvements because of stronger gross refining margins (GRMs) and marketing margins, the average price of Brent crude oil has decreased to $74 per barrel, down $5 from the previous quarter. However, this drop may boost gross marketing margins for OMCs as the benchmark Singapore GRM increased by $1.4 per barrel during the same period.

In the Telecom sector, a tariff hike implemented in July 2024 will finally be reflected in the December quarter results. Analysts project that operating margins for major players could rise by 4-6 percent, with an expected 4.5 percent increase in Average Revenue Per User (ARPU), driven by upgrades to smartphones and post-paid plans.

Conversely, the Consumer Staples sector paints a less optimistic picture. Analysts foresee only a modest high single-digit revenue growth of around 9 percent year-on-year, primarily fuelled by price hikes. However, profitability is expected to decline by approximately 6 percent due to high operating costs and negative operating leverage.

The Capital Goods sector has struggled recently due to declining order flows amid a general economic slowdown and state elections. Nevertheless, certain segments like thermal power and renewables are experiencing strong demand. Analysts predict a significant revenue growth of about 20 percent year-on-year for this sector, alongside a 26 percent increase in net profits.

Growth projections vary significantly among sub-sectors in the Non-Banking Financial Companies (NBFC) space. Home finance companies are expected to grow by around 9 percent while vehicle financers might see growth of 22 percent. Gold lenders could experience a substantial increase of 24 percent due to rising gold prices. However, unsecured retail loans and microfinance lending are likely to face challenges, leading to an overall net profit growth estimate of about 8 percent.

The Banking sector faces its own set of challenges with anticipated weaker loan and deposit growth. Analysts expect public sector banks to perform better than their private counterparts amid rising slippages in unsecured loans and pressure on net interest margins (NIMs). The consensus suggests that while PSU banks may maintain steadier performance, private banks could experience significant earnings cuts.

The Automobile sector is bracing for disappointing results despite the festive season's boost. Original Equipment Manufacturers (OEMs) are projected to achieve only a 6 percent volume growth, with weak demand persisting in two-wheelers and commercial vehicles. Revenue growth is expected at around 9 percent, with net profit growth slightly lower at approximately 6 percent.

Finally, within the IT sector, most companies are poised for positive year-on-year growth as technology spending is projected to improve in 2025. However, larger firms may face pricing pressures and shifts in revenue composition that could impact margins negatively.

Overall, while expectations for this earnings season remain subdued, any unexpected positive surprises could provide much-needed encouragement to investors navigating these turbulent times.

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