Q3FY19 Earnings Preview: IT services and banks to lead earnings growth

The earnings season for the third quarter of FY19 has already started, however, it is still in its initial phase and very few large companies have come out with their results. IndusInd Bank that came out with its Q3FY19 numbers on Wednesday posted a stable result with its profit increasing by 5.2 per cent on a yearly basis. This single digit growth was posted due to high provisions for debt-laden IL&FS.

Nevertheless, the banks and especially public sector banks will see better growth numbers in this quarter. They will witness stable net interest margins (NIM) and strong credit growth that will result in robust net interest income (NII) growth. This will be further aided by higher treasury income due to fall in bond yields and gains from NPA resolutions. Gross NPA is likely to see a fall on a sequential basis.

Another sector that is likely to do well is IT services. It is expected that the topline will grow a tad lower in constant currency terms due to negative cross currency impact. The profit, however, is likely to grow in double-digit due to depreciation in Indian rupee that is going to aid margins of the IT companies.

The next sector that is going to perform in this on-going result season is speciality chemicals. This sector will deliver a strong set of numbers on the back of improved domestic and external demand scenario. Better product mix, favourable currency and increased realisation from value-added products.

The sectors that will be a drag in the last quarter of 2018 will be automobiles, NBFCs and pharmaceutical.

For the auto sector, this fiscal's festive season saw weak volumes. The margins are also likely to be depressed, led by higher incentives and negative leverage. NBFCs will be hit due to moderation in NII growth as witnessed weak AUM growth. The margins are also likely to take a hit as the cost of funds have gone up in the third quarter after the IL&FS defaulted its interest payment in September. The pharmaceutical sector will continue to reel under the adverse impact of pricing pressure in their largest market, the US. The competition is intensifying for generic business in the US market which is impacting both revenues and profits of pharma companies. Overall, on an aggregate basis, the sector will see a decline in its profit on a yearly basis.