BFSI to lead Q2 show

Mumbai: Second quarter earnings kick off from Monday, with IT major TCS announcing its earnings performance. Earnings preview by top brokerages estimate July-September quarter earnings to be mixed, with banking, financial services and insurance (BFSI), pharma & healthcare services, and auto & auto ancillaries doing well while there will be under performance by cement & other construction materials, metals & mining, airlines and media, among others.

The jury is still out on IT services companies where rupee depreciation will aid revenue growth while travel costs, hiring and cross currency headwinds are making it difficult to take a clear call on their performance. Analysts are expecting better margin for tier-II IT companies versus the tier-I IT companies.

During the quarter Brent crude oil price softened and traded in the range of $101.89 per barrel to 83.59 compared to previous quarter when Brent shot up to  $122.77 per barrel. During the quarter, the rupee depreciated from 78.92 to a dollar to 81.44 per dollar. "The rupee has depreciated by 3.6 per cent for the quarter versus USD, while it has appreciated by 1-5 per cent against other currencies," such as GBP, EUR and AUD," said Kotak Securities, so it's not a win-win situation for IT firms.

"Margin headwinds continue-these include high cost to backfill attrition, increase in travel and back-to-office costs, among others. Some of the pressure points, especially on talent, will ease in the subsequent quarters. However, for the September 2022 quarter, the headwinds result from wage and higher travel costs," said the preview by Kotak Securities.

The top 5 IT companies are expected to deliver sequential growth in the range of 3 per cent to 4.5 per cent in constant currency terms," said a preview by Choice Broking.

Banks are likely to shine in Q2 with strong and broad-based credit growth as retail loan growth is robust. PSU banks are also participating in growth.
"Strong loan growth, net interest margin (NIM) expansion and a sharp decline in loan loss provisions would be key positives for banks; trends in NIMs for NBFCs are mixed. Asset quality should see further impro-vement across all lenders," Kotak Securities said.

Credit off-take is witnessing a strong pick-up, surpassing 15 per cent year-on-year, Choice Broking said.

Lower Covid base and INR depreciation may boost pharma companies earnings in Q2FY23, according to preview reports. But offsetting these factors would be continued US generic price erosion, EU/emerging market currency depreciation, raw material inflation and higher freight costs, analysts said.

Healthcare services are expected to perform better, led by higher domestic and international footfalls and occupancies.

"Hospitals are structurally well-placed with momentum expected to continue from a robust Q1FY23. The momentum is likely to be driven by sequential in-patient volume and, thus, higher in-patient conversion," said a preview by ICICI Securities.

"Continued decline in key raw material prices and pick-up in electrification trend including ordering activity in the electric bus segment, new launches in the SUV space, quarter on quarter improvement in vehicle wholesale volumes, improving supply chain dynamics, affordable launch in the premium two-wheeler space are likely to aid auto and auto ancillary companies performance.