The domestic
demand-driven story is likely to continue, as is evident from the
growth in the Sensex' earnings led by cement, capital goods,
automobile and fast moving consumer goods (FMCG)
companies.
The Indian
pharmaceutical sector is expected to report strong earnings growth
for Q3FY2007, driven by continued domestic growth, steady
contributions from exports and synergies arising out of
integration of acquisitions.
The
performance of the front-line information technology (IT)
companies is expected to be affected in Q3FY2007 by the dual
impact of a lower number of working days and a steep appreciation
in the rupee. Based on our Q3FY2007 estimates, the implied
earnings growth in Q4FY2007 for Tata Consultancy Services, HCL
Technologies and Wipro are 1.1%, 1.6% and 0.2% respectively. This
leaves sufficient room for an earnings upgrade. We would make the
required changes in the result updates of the respective
companies.
We expect the
earnings of the Sensex companies to grow by a strong 27% year on
year (yoy) led by a strong growth in the above-mentioned sectors
on the back of a lower base in Q3FY2006 influenced mainly by the
numbers of Reliance Industries Ltd (RIL).
Strong
earnings growth are expected from pharma majors Dr Reddy's and
Ranbaxy, cement majors Gujarat Ambuja, ACC, Grasim and from
Hindalco on the metals front.
Low growth or
decline in profits is expected from ONGC, Reliance Energy, Hero
Honda and NTPC.
The implied
year-on-year (y-o-y) estimated growth in the profit after tax
(PAT) for Q4FY2007 works out to 60%. That is due mainly to the
high earnings expected in the last quarter from the financial
sector, especially the State Bank of India (SBI) whose Q4FY2006
earnings were comparatively lower. Major upgrades are not expected
in the FY2007 earnings in most sectors barring FMCG, which shows a
low implied growth
rate.
