Jonathan Ananda By

Express News Service

CHENNAI: India Inc’s stocks might be breaking records, but corporate earnings in the first quarter of this financial year are set to be impacted by a variety of reasons, including pre-GST uncertainty, global headwinds and depressed crude prices. According to analysts, these factors indicate that first quarter earnings across sectors, including IT, Telecom, Pharma and Banking, are likely to see negative growth.

These analyses have been bolstered by the first crop of results that have been announced. On Thursday, IT major TCS reported a 5.9 per cent drop in net profit over last year, even as Bajaj Auto reported a 7 per cent fall in revenue growth on Wednesday.

The drag on earnings is likely to be reflected across sectors. Citi Research expects as much as a 12 per cent decline in earnings compared to the same period last year for the companies it covers. This is due to the short lived disruption triggered by the rollout of the GST.

The new tax system is seen having a short-term impact due to destocking and inventory clearing ahead of its implementation. Sectors likely to be affected include pharma and consumer goods companies.

However, factors apart from the GST are set to depress earnings in other sectors. The IT sector has been facing global headwinds due to changing technology demands, and recent wage hikes coupled with a strong rupee will see margins contract. Oil marketing firms are set to see weaker earnings due to the fall in crude prices and inventory losses, and telecom and healthcare sectors are likely to see a fall in earnings too, according to analysts

According to Nomura, the entire spectrum of sectors, excluding banks and oil firms, is set to see the weakest year on year revenue growth in three years.

“We expect EBITDA and net earnings for the ex-banks and oil/gas universe to record 0.9 per cent and 7.2 per cent decline year-on-year respectively, sustaining the growth slowdown recorded in the past five quarters.”

“The disruptions due to the implementation of GST (destocking and channel compensation), INR appreciation, rising overheads and the impact of higher commodity prices are the factors that are hurting earnings growth in the quarter. We expect a revival in 2QFY18F, but the results season is unlikely to drive any earnings upgrade.”

Banks too are likely to be weighed down by higher provisioning requirement and slow credit growth. However, the GST related headwinds at least will settle down in a few months, say analysts. “It will take some time for things to settle down. There might be some impact this month and the next month because of the destocking and confusion, but by August it will start to pick up,” said Rajat Wahi, Partner, management consulting, Deloitte.