Q3 corporate earnings post demonetisation- Senrysa’s Perspective

If there is one news that India Inc. have been waiting with baited breadth – Report card for Q3 (2016-17) corporate results. This is because post demonetisation, life in India has not been the same before. Indians have faced severe cash crunch post demonetisation and are slowly grappling to come in terms with the same. However, they are moving slowly but surely towards a digital India.

Post demonetisation corporate earnings for Q3 have remained sluggish overall, bad for some and not so bad for others. If we were to take a synopsis of the entire industry, the worst affected has been the auto industry. It has been routinely observed all along that the trend for auto sales remains poor in December since most people anticipate low return on resale value of their vehicle and prefer to defer buying decision until January. This year in particular auto industry suffered a double whammy considering the above factor and also sales remained low because of scarcity of cash/withdrawal restrictions.

According to Kotak Institutional equities revenue and net profit for auto companies is likely to decline by 4 percent and 10 percent respectively. The scenario in two wheeler sales would have been worse as around sixty percent of sales in this segment takes place in cash but thanks to higher sales in first 40 days of Q3 have therefore salvaged the situation somewhat which otherwise  would have been very bad.

Industries like pharmaceuticals, IT, commodities and oil & gas have not faced any major brunt of demonetization largely due to their global customer base and also because their exposure to retail customers has been minimal.  Most market analysts also feel that Q3 results, especially earnings In December may not be all that bad for Nifty 50 and large companies too. Here again, according to Harish Krishnan, Vice-President — Fund Management Equity, Kotak Mutual Fund. “The probability of earnings declining by double digits in Q3 is very low. Forty-five out of 90 days have been good due to festive season. The first half was also good,” Therefore it could be safely argued that most companies in the Nifty100 will also see not much impact from demonetization.

 Overall the fallout of demonetization on third quarter earning shall be negated thanks largely due to Seventh Pay Commission payouts coupled with robust festival season. The above two has been a saver for sectors such as consumer goods and consumer durables which otherwise would have witnessed plummeting sales due to severe cash crunch. Therefore Santa’s gift as Seventh Pay Commission payouts marked with other festivities during this quarter have certainly been able to cushion things somewhat and saved the blushes for most manufacturers from the dismal performance.

We feel that companies dependent on urban areas for sustenance will be less impacted when compared to those operating predominantly in rural areas since the latter has less access to banking and limited use of plastic money compared to the former.

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