All eyes will be on the upcoming 20-day monsoon session of the Parliament starting Monday, July 18, and the Q1 earnings season. Hectic government parleys with Congress party are afoot to get the latter’s support for the passage of the GST bill. The government is scheduled to hold a formal meeting with Congress leaders on the bill. It has already called for an all-party meeting on 17 July to discuss the modalities. Hopes on passage of the bill have risen, with the government counting on its improved tally in RajyaSabha, support of various non-Congress parties, and nominated and independent MPs.
Monsoon, despite a late start, has covered the entire country ahead of schedule, with the cumulative rainfall 2% above the normal. As of July 12, area under Kharif crops stood at ~525 lakh hectare compared to 518 lakh hectare last year. Government's first assessment of agri-output prospects for the season hints at a record Kharif harvest. More importantly, pulses output is likely to be 20% higher YoY. Welldistributed rains will help revive rural incomes and demand, and also alleviate food inflation.
Earnings – watch out for QoQ surprise: Q1 earnings season got off with not-so-great start with Infosys lowering its annual guidance and its revenue falling short of estimates. For our coverage (170 companies ex-OMCs), we estimate earnings to decline by 2% YoY. Public sector banks are likely to continue to be a drag. Resources and Oil too will weigh on the earnings. However, excluding these sectors, we expect earnings to grow at ~8% YoY as well as QoQ. Interestingly, earnings for the above sample size will be the best such sequential performance in past 10 quarters.
Expectations from Sensex companies: Revenue to grow at 5% YoY, EBITDA to rise 10% YoY and earnings to remain muted. However, excluding BFSI, earnings are likely to clock ~5% YoY growth
Earnings growth is likely to be driven by exports (Sun Pharma), Engineering, Power and FMCG. BFSI (SBI and ICICI) and Auto (TAMO) are expected to de-grow
L&T, Lupin, Sun Pharma, GAIL, NTPC, PGCIL and HDFC Bank likely to report highest YoY earnings growth, while SBI, ICICI Bank, ONGC and Tata Motors may post sharpest YoY earnings decline.