NEW DELHI, Feb 18 (PTI): India Inc’s earnings, which are likely to remain subdued for the next couple of quarters, may recover in the second half of the coming fiscal, as economic growth may pick up on lowering interest rates and commodity prices, says a report.
“While we think earnings will remain under pressure for at least another two quarters, we expect to see signs of recovery in the third quarter of FY’10,” financial services major HSBC’s global research arm said in the report.
Along with the interest rate cuts, which would take at least a year to work, collapsing commodity prices, buoyant FDI, government’s fiscal action and higher oil and gas output would collectively help growth to pick up, the report said.
HSBC expects earnings to start recovering supported by lagging impact of monetary accommodation by RBI, which would feed through the economy in 12-24 months, boosting consumer demand and reducing interest expenses.
“We forecast earnings growth of 5-10 per cent for FY’10, while consensus is discounting 10 per cent for the year from current levels,” the HSBC analysts said in the report.
In the annual earnings season for the current fiscal, companies may take an upfront earnings hit to set themselves up for a better FY’10 and might also issue more cautious guidance for the year ahead, it added.
HSBC economists believe that the economy may hit its cyclical trough by the end of first quarter of FY’10, following which a mild recovery is likely to set in by the second half of the fiscal.
Interestingly, the report added that the general elections to be held in May, could be a major catalyst, especially when the winning coalition would be business-friendly and can step up economic reforms.
In the quarter ended December 2008, the 30 companies constituting the benchmark index, Sensex, had performed poorly and declined on average 8.2 per cent. The drop was mainly due to Ranbaxy Labs and ONGC, as leaving aside the two companies, Sensex earnings actually grew 1.8 per cent.
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