With close to 500 companies reporting losses, the highest number in at least five quarters, the earnings season has been a big disappointment. Save for a clutch of metals producers, which swung from loss to profit, most companies have struggled to grow their top lines in a weak economy. In an environment in which raw material prices have risen, albeit moderately, cash flows have been crimped.
Consumer spends are on a leash; Jubilant Foodworks and Shoppers Stop reported poor same store sales while at Britannia revenues grew just 6% y-o-y. Telecom firms’ bottom lines have been battered in a tariff war; profits at Bharti Airtel crashed.
As strategists at Kotak Institutional Equities, noted, the 4QFY17 numbers look strong on paper but if the numbers have beaten estimates it is thanks to the strong performance of the overseas operations of Tata Motors, large adventitious gains for BPCL and IOCL and the high other income reported by ONGC.” Underlying drivers for most sectors continue to be weak, which has led to further earnings downgrades, “they wrote.
While, commentary has been fairly cautious with some corporate chiefs apprehensive about the rollout of the GST on July 1, there are those who believe a lower incidence of tax and consequently lower prices of goods could boost demand. However, analysts believe sectors such as IT, pharmaceuticals and telecom will continue to face pricing pressures.