Note ban impact: Corporate earnings to dip to 4% in Q3

After recording an average revenue growth of 6.3 per cent for three consecutive quarters, corporate earnings for key sectors will likely dip to 4 per cent for the October-December period of 2016-17, owing to the Government’s demonetisation drive, said a Crisil report. Moreover, the impact of note ban, announced on November 8, will continue into the fourth quarter (January- March) of the current fiscal, it said.

“However, the pace of growth in the fourth quarter would still recover to 5-7 per cent. For the third quarter ended December 31, corporate topline growth is seen declining to 4.1 per cent on-year because of demonetisation,” it added.

As per the rating agency, revenue growth had picked up to an average 6.3 per cent in the preceding three quarters from around 1.7 per cent seen in the four quarters prior to that.

The analysis excluding banking, financial services and insurance (BFSI) and oil companies took into account expected results of 390 companies, which account for estimated 64 per cent of the market capitalisation of the National Stock Exchange (NSE) listed companies.

As consumer spending on discretionary items have dried up due to the currency swap exercise, Crisil said consumer- linked sectors like FMCG, housing, retail, telecom services and textiles are likely to see de-growth in Q3 of 2016-17.

“Despite a favourable monsoon and lower borrowing costs, we expect key consumption-driven sectors such as automobiles, telecom services and FMCG to record the slowest growth in two years,” Crisil Research senior director Prasad Koparkar said.

“On the other hand, steel product companies are expected to report a robust 25 per cent growth, primarily led by 18 per cent higher realisations helped by government support and robust export growth,” Koparkar added.

He noted that revenue growth of IT services companies has been gradually declining over the last couple of quarters.

“In the third quarter 2016-17, rupee revenue of IT services industry is projected to grow at a slower pace of 7 per cent on-year.” 

Besides, gross revenue of the telecom services industry is expected to fall 11 per cent on-year on account of Reliance Jio’s entry and the decommissioning of high value notes.

The impact of Jio’s entry on revenue is expected to be more visible in urban areas, while demonetisation will have the maximum impact in rural regions, the report said.