Higher realisation for steel makers and a favourable base effect might is set to get the cash registers for Indian companies ringing in the second quarter of fiscal 2018-19.
Indian companies will see a robust 12.1% year-on-year growth in revenues during the second quarter, up from 7.4% in the same quarter last fiscal year, said domestic ratings agency CRISIL in a report released on Thursday.
CRISIL’s analysis was used on 365 companies, which account for 65% of the market capitalisation on the National Stock Exchange. The companies exclude firms from banking, financial services & insurance sector and oil sector firms.
According to CRISIL, the performance of India Inc in the second quarter will be driven by consumption-led sectors like airline services, automobiles, FMCG and retail. Export-linked sectors like IT and pharmaceuticals are set to gain from a fall in the value of the rupee.
Retail, FMCG and automobiles will also get the benefit of a low-base effect due to the slowdown caused by the rollout of the Goods and Services Tax (GST) in the same quarter last year, the agency added.
“Automobiles are expected to see a 4% growth in sales, airline services should see passenger traffic rise 16% on-year,” said Prasad Koparkar, Senior Director, CRISIL Research.
Sectors like steel, aluminium and cement will see the benefit of higher volumes driving revenue growth while investment-linked sectors like housing and capital goods will be aided by increased government spending.
However, the improvement in the performance of steel and aluminium coupled with the rising crude oil prices will increase cost pressures on industries like airlines and automobiles.
“Domestic prices of coal, long steel, flat steel and aluminium are expected to rise 15%, 14%, 17% and 12%, respectively, on-year. That would add to the cost pressure for end-use sectors,” said Rahul Prithiani, director, CRISIL Research.
CRISIL also pointed out that cost pressures are rising across sectors. The agency said that operating margins for steelmakers could be impacted to the tune of 5-10 basis points (bps).
“Shorn of steel, that number would be plunging to 70 bps. And if cost pressures continue to rise, the gradual ascent in operating margins seen from the fourth quarter of last fiscal could reverse,” CRISIL said in a statement.