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Time of reckoning

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Shobhana Subramanian Mumbai
Last Updated : Feb 05 2013 | 3:55 AM IST
The March quarter numbers could be less than exciting, though no nasty surprises are expected.
 
Earnings confessions are inevitable this reporting season, says a Credit Suisse report, which belives they would be' mild in magnitude' because of the general belief that both the domestic and global economies will post speedy recoveries.
 
The report calls upon companies to take cognizance of the strength of cyclical forces at play and come up with conservative forecasts.
 
While that may dampen the mood in the near term, perhaps causing the markets to drift down, it would temper investors' expectations, thereby laying the ground for a more stable upmove in stock prices later on.
 
However, companies appear to be reluctant to accept that the economy is slowing down, prefering to remain hopeful that things will take a turn for the better sooner rather than later.
 
Many of the mid-sized firms, where the managements may not be as mature,seemingly more vulnerable to peer pressure. Any unfounded bullishness will hurt the market sentiment, which is taking its time to revive because it is staring at a slower credit growth, new highs for inflation and oil prices and high interest rates that are unlikely to come off in a hurry.
 
Investors are already a skittish lot and the slightest bit of bad news is enough to make them more nervous. In short there is now simply no room for disappointments in earnings in the next couple of quarters.
 
Besides,companies need to recognise economic realities for their own benefit; in order to ensure that their business plans, and consequently financials, do not go awry.
 
For the moment earnings forecasts are encouraging: IBES consensus indicates a compounded growth of 20 per cent for the Sensex between FY08-10.
 
However, there are downside risks to the IBES numbers because the prospects for global growth are deteriorating; even if the Indian economy caters largely for the home market, there will be export-driven sectors that will suffer.
 
The home market itself is in danger of losing steam with chances of interest rates coming down now remote. While top line pressures could result from less spending given high inflation as also the inability of manufacturers to pass on higher input costs in a competitive environment, margins could get compressed thanks to high input costs.
 
Most risks are known to the market and are factored into the forecasts though estimates for FY09 could be revised downwards if there are some unpleasant surprises in the March 2008 quarter numbers.
 
Expectations for the March quarter have already been tempered and estimates lowered: the average growth expected for the Sensex universe (ex-oil) is about 15-16 per cent. One reason for this is the high base effect: growth in March 2007 was 30 per cent.
 
That apart, sectors such as automobiles have seen sluggish volumes during the quarter while high commodity prices have hurt manufacturers. There have been a couple of nasty surprises: power equipment maker BHEL's execution in the March quarter has been poor dragging down its profits while power generator NTPC has seen expenses mounting.
 
All in all, the March quarter numbers are going to crucial; they will to a large extent determine the future course of the market.

 
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First Published: Apr 15 2008 | 12:00 AM IST

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