Sensex firms likely to see 20% earnings growth

India Inc is expected to witness a robust growth during the second quarter of 2010-11 fiscal and the Sensex companies may see an increase of around 20 per cent in sales, majority of brokerages have forecast.

During the September quarter, performance of India Inc is expected to be robust on the sales front.

However, net profit growth during the quarter would lag top-line growth, a host of brokerages said in their earning preview reports.

"While we have estimated net sales of Sensex companies to increase by around 20 per cent YoY, net profit is expected to post 13.5 per cent growth," Angel Broking said in its earning preview.

Analysts expect that metals, financial, oil and gas, and capital goods sectors will deliver robust numbers for Q2. Metal pack is likely to significantly contribute to overall earnings growth of the Sensex.

"On the other hand, the heavyweight financial sector is expected to post 21 per cent annual rise in net profit during the period. Growth for the sector would be driven by growth in NII, which is expected to remain robust," Angel Broking said.

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According to a preview report by Motilal Oswal, companies that are part of Sensex will clock a growth of 22 per cent in the second half of this fiscal, against 25 per cent witnessed in the first half.

The moderation is due to a higher base, the brokerage house said adding that 'Sensex earnings growth would be 20 per cent excluding the swing of Tata Motors and Tata Steel.'

Indian markets are in euphoric times. This is evident in the strong performance of benchmark indices, above average valuations, unprecedented FII flows, large IPO subscriptions, increased traded volumes, and so on.

According to Motilal Oswal, the key drivers this time are agriculture -- the year 2010 is among the best years in terms of rainfall -- and strong industrial production, that grew 13.8 per cent in July 2010.

However, ICICIDirect believes India Inc is likely to face pressure on their bottomline owing to rising input cost and higher provisioning costs (banks) that will be reflected in the tepid margins in September quarter figures.

"Both banking and non-banking companies are likely to see muted growth in both EBITDA as well as PAT on a QoQ basis," it said.

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On sectoral basis, ICICIDircet predicts that in terms of revenue growth, auto sector will witness a rise of 30 per cent (YoY), capital goods (60 per cent), banking (35 per cent) and oil & gas (39 per cent) to lead whereas growth in cement, IT, metals and power sector will be in low double digits.

"The FMCG and IT sectors are expected to grow broadly in line with the expected Sensex earnings," Angel Broking said. The brokerage house predicts that Reliance Industries, that holds the maximum weight in Sensex, may record an annual rise of 32.3 per cent in its profit during the latest quarter.

In the same quarter a year earlier, the energy giant had a net profit of Rs 3,852 crore. On the other hand, IT bellwether Infosys, which is announcing financial results on October 15, is likely to log a jump of 10.6 per cent in its net profit.

In its earning preview for auto sector, Sharekhan said it expect the operating profit margin of the automobile companies under is likely show a sequential improvement in the latest quarter.

"Record high volumes reported during the quarter are expected to result in positive operating leverage in the Q2 earnings," Sharekhan said. During the quarter under discussions, the bourses picked up significant momentum.

This resulted in markets breaking away from the tight range, which they were confined to for the last three quarters.

The Sensex grew by 13.4 per cent QoQ during the quarter, reporting the highest quarterly returns after an 18.2 per cent QoQ rise in the second quarter of fiscal 2010. The sharp surge came on the back of strong inflows.