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Covid to dampen Q1FY22 results, subdue sentiments
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SME Times News Bureau | 10 Jul, 2021
Covid's second wave along with regional lockdowns are expected to dampen
the Q1FY22 earnings result season, thereby, unleashing volatility.
Notably, the trend might lead to value correction, this in theory, can trigger another bull run.
However,
the scale of this expected trend might only be known via the impact on
revenue that different sectors sustained in respect to lockdown's effect
on operations and sales.
Other factors such as high commodity
and fuel prices along with impact of rural Covid spread on the FMCG
demand will exert pressure on Q1 revenues.
In contrast, pharma
companies could benefit due to the second Covid wave, besides, metals,
BFSI and IT are expected to drive earnings' growth in Q1FY22.
Furthermore,
in Q1FY22, Indian corporates have the benefit of a low base, while
during Q1FY21 the aggregate net sales of most companies had fallen
sharply and their net profits had plunged.
"In Q1FY22, though
there was disruption or partial lockdown in several states in April or
May due to the second Covid wave, the impact of this on the business
activities does not seem to be as severe as in last year. Also states
were well prepared this time to deal with the situation," said Deepak
Jasani- Head of Retail Research at HDFC Securities.
"Trends in
shift from informal to formal sectors, impact of raw material price
increase and inventory gains or losses due to China intervention in
commodity markets will be interesting to watch out for. In the BFS
space, asset quality or slippages trends in the books of lenders will be
monitored closely."
Additionally, Jasani said that several
high-frequency macro indicators have improved lately including power
consumption, auto fuel demand, e-way bills, exports amongst others.
"Rising commodity costs, higher inflation, and a likely rate increase are key concern areas."
According
to Gaurav Garg, Haed of Research at CapitalVia Global Research: "The
opening of the season was good by TCS, it posted a net profit growth of
28.5 per cent, it also posted a growth of 18.5 per cent in consolidated
revenue."
"However, this earnings season may have few surprises
as it coincided with the second wave of the pandemic and therefore there
might be mixed results."
Garg cautioned investors to be prepared
for mixed results owing to the pandemic restrictions in the previous
quarter, it may not be extensive as the previous lockdown but still some
impact is expected.
"Markets seem to be correcting themselves
from their resistance and positive earnings may prove to be the required
stimulus to boost market further up."
In a report Crisil
Research expects India Inc to report a sequential decline of 8-10 per
cent in revenue at Rs 7.3 lakh crore for the first quarter of this
fiscal.
The decline might be led by consumer discretionary
products such as automobiles, which saw volumes impacted by the
lockdowns across states to contain the second wave of Covid-19
infections.
Nevertheless, Crisil Research said on a yearly basis, the revenue will rise 45-50 per cent on a low base.
The
report pointed out that improvement will be seen across sectors, riding
on higher volume on a low base and greater realisations due to increase
in commodity prices.
Factoring out the commodity sectors, on-year revenue growth will be lower at 37-40 per cent, the report added.
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