ET Intelligence Group: India Inc reported robust earnings for the June quarter helped by a lower base in the form of a muted performance in the year-ago period and higher demand in select consumer segments.Year-on-year growth in net sales and net profit was the highest in at least nine quarters. Given signs of recovery in several sectors including banking, capital goods, cement, information technology (IT) and metals, analysts expect the momentum to continue in the coming quarters. A depreciating rupee and hardening interest rates in the economy, however, pose concerns.Net sales of a sample of 2,053 companies, excluding banks and finance companies, increased 19.3% year-on-year in the June quarter, a sixth consecutive quarter of double digit growth. Net profit soared 25%. In the year-ago quarter — when industry was preparing for the July 1 launch of the goods and services tax ( GST ), about seven months after demonetisation — profit had fallen by 4.8% while sales had increased at a slower rate of 10.1%.“Most of the results were along expected lines (in the June quarter) although FMCG (fast-moving consumer goods) companies surprised on the positive side in terms of revenue growth while oil companies surprised positively on revenue and on profitability,” said Mayuresh Joshi, fund manager, Angel Broking.The numbers reflect the theme of a recovering economy, key to generating jobs and raising incomes ahead of the general election scheduled for next year. The behaviour of the monsoon will be critical to the rural economy’s wellbeing and the prospects of consumer goods companies going forward. The monsoon has been deficient thus far but has revived in the past few weeks, leading to floods in Kerala.Sectors focusing on retail consumption such as beverages, consumer durables and non-durables, education, hospitality, media and entertainment, and retail continued to support the overall performance.A sample of 264 companies from these sectors reported 10% growth in net sales and 18.2% growth in net profit for the June quarter. In the year-ago period, sales for the sample grew 7.9% and profit 10.2%, respectively. The sample contributed 6.5% to the total revenue of the main sample and 12.5% to its net profit.The performance of banks continued to mar the aggregate numbers. A sample of 36 banks reported a net loss of Rs 1,580.30 crore, the third consecutive quarter of losses. However, the extent of loss in the June quarter was lower than the Rs 45,634-crore loss booked in the previous quarter.The sample’s revenue growth slowed to 18.1% and profit growth to 10.3% after the inclusion of banks and finance companies. “The disappointment was especially seen in large (state-owned banks like State Bank of India, where the investment write offs were much larger than expected,” said Joshi.Analysts expect the consumption theme to remain a major growth driver over the coming quarters. “The demand momentum in consumption space is robust, which will drive earnings,” said Pankaj Pandey, research head, ICICI Direct.“In the capital goods and infra space, cement demand outlook is favourable and EPC (engineering, procurement and construction) based companies can deliver double-digit top line and bottom line growth over FY18-FY20E.”He expects the Sensex earnings per share (EPS) to grow in excess of 20% annually between FY18 and FY20. While domestic demand looks to be on a recovery path, Angel Broking’s Joshi drew attention to major worries.“First, the rupee has crossed the 70 per dollar mark. This could have negative implications not only for importers but also for dollar borrowers,” he said. “IT and pharma should benefit from a weak rupee but that is unlikely if there is a global demand slowdown.”The Reserve Bank of India’s stance on interest rates will be a critical factor for sectors sensitive to this such as banks, non-banking finance companies (NBFCs), auto and realty, Joshi said. The next monetary policy review will be held October 3 and 4.