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Nikkei Markets

India Nifty-50 companies likely to post weak quarterly earnings

Tighter credit continues to hurt spending in Asia's third-largest economy

MUMBAI (NewsRise) -- Indian companies are set to report yet another quarter of weak earnings in April-June, led by shrinking profits at automakers as tighter credit saps consumer demand.

Revenue of India's Nifty-50 index companies is likely to grow merely 3% during the first quarter of the financial year, compared with 7% in the previous three months and 18% in the year ended 31 March, Edelweiss Securities said in a report last week.

The brokerage expects corporate profits to expand 7% in April-June, missing its annual earnings growth target of 26% and risking an earnings downgrade.

"What's worrying is the sharp moderation in top-line growth...and, it's across the board," Edelweiss said in a report. "Excluding commodities, the top-line growth is likely to be the lowest in a decade."

India's $2.9 trillion-economy has been contending with slowing demand for automobiles, consumer durables such as television sets, and travel services after banks tightened credit. That caused the nation's gross domestic product to expand at the slowest pace in four years during January-March.

Poor farm income due to patchy monsoon rains last year and food deflation added to the woes, said analysts.

Analysts had previously forecast the Nifty-50 companies to witness an earnings growth rebound this fiscal year amid hopes of a revival in banks' lending as bad debt levels began to subside. Motilal Oswal had predicted the earnings of companies in the Nifty, India's broader stock index, to grow as much as 26% this fiscal year, mainly driven by banks.

A likely spurt in lending was expected to feed into the consumption and staples-related segments as well as the agricultural sector. However, consumption continues to spiral down as banks stay cautious.

"The current crisis is not a liquidity crisis as depicted, but a mini Lehman of the Indian style," Edelweiss said. "We believe that the Indian banks are facing the worst crisis ever which will take its own course."

India's biggest consumer finance company Bajaj Finance and largest jewelry retailer Titan have warned that "tough" demand conditions affected their financial performance in the last quarter.

"Sales of television units reach a peak level during big events. But it is very unusual that this year, despite the cricket world cup, TV sales were lower than last year," Sanjiv Bajaj, managing director of Bajaj Finance, told local television channel CNBC TV18 in an interview on Tuesday. "The slowdown is quite apparent."

Titan, the jewelry and watches brand of the Tata Group, said its first-quarter revenue grew a "muted" 13%. "The quarter witnessed a tough macro-economic environment with consumption being hit," the company said in its quarterly update on Monday.

"Against this background, the company's growth, particularly in the jewelry segment was lower than planned even though the gains in market share were sustained."

Titan shares plunged 12% on Tuesday.

On Monday, state-owned Container Corporation of India, too, reported a 1% decline in export-import handling volumes for the first quarter, stirring fears of the economy further slowing in April-June.

"These are negative signs. The slowing economy is starting to reflect in corporate earnings," Varun Khandelwal, a director at Bullero Capital, said. "I expect sequential quarters to be worse as private investments continue to remain few and far between."

--Dhanya Ann Thoppil

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