InvestorQ : What are the key risks that you see in the third quarter earnings numbers from Indian companies?
Rutuja Nigam made post

What are the key risks that you see in the third quarter earnings numbers from Indian companies?

2 weeks ago

Broadly, there are two risks that I seen in the results that have been announced so far. The first risk pertains to the fact that the momentum or the enthusiasm shown by markets in the Sep-20 quarter is missing in the Dec-20 quarter. The second issue is that the sales revenues or what is called the top line, still leaves a lot to be desired. That is largely because the demand at the consumer level is yet to pick up in a meaningful manner.

Let me first talk about the issue of Q2 momentum is missing. If you quickly summarize the performance of the top 450 plus index companies in India, the momentum and expectations that were built in the Sep-20 quarter appears to be missing. Actually, even expecting that is unfair because Sep-20 quarter came after the pandemic devastation so there was a lot of pent-up demand.

Sep-20 quarter came immediately after the devastation of June and hence it was a combination of factories getting back to work and latent demand bouncing back to pre-COVID levels. That story appears to have substantially played out in the Sep-20 quarter itself and that solid momentum has clearly not been carried forward into the Dec quarter.

But the bigger worry is on the top line which is not showing signs of really growing anywhere close to appreciable. Why is there such a drab outlook on the top-line revenues? Let us look at some instances. Most of the Indian banks have seen good traction on treasury income but if you look at retail lending it has been flat. The corporate lending revenues have fallen quite sharply in most cases due to lower rates and weak demand.

If you cast a glance at most of the industrial companies the growth has been flat to negative or, at beast, it has been in low single digits. That is not an encouraging signal at all as it hints that the demand recovery which analysts and investors were betting on; is far from visible in the third quarter. The focus would now move to Q4, but clearly if the top-line does not pick up, the bottom line may run out of ideas to grow. It does look like short term saturation.