The last April-June (Q1) corporate results provide a very depressing picture. It is the worst in memory. Barring a very few large companies such as Reliance Industries and Hindustan Unilever, most of the large stock exchange listed firms showed a substantial negative growth in net earnings as well as net profits. There is little hope that industry sales will recover anytime soon. Employees — both white and blue-collared — are losing jobs in thousands. Many are forced to indefinitely work from home. Most corporate offices look deserted. Lockdowns and containment zones are imposed at will though the government does not have a well equipped administrative apparatus to ensure their effectiveness.

A Dalal Street report, providing a cumulative view of the first quarter (April-June, 2020) results of 96 companies, shows their sales were down by over 14.02 percent to Rs. 202,308 crore from the corresponding level of Rs.213,693 crore, last year. Their combined net profit was down by 9.72 percent to Rs.33,658 crore. The net sales of Larsen & Toubro, India’s largest engineering company, declined by over 28 percent to Rs.21,260 crore. The profit at L&T, considered as bellwether of the infrastructure sector, was 68 percent down at only Rs.537 crore. L&T would have made a loss had it not been for a one-time gain of Rs.225 crore from the sale of its wealth management unit and deferred tax reversal of Rs.307 crore. Bajaj Auto’s Q1 sales were down by two-thirds. The company managed to sell just above four lakh units of motor cycles and commercial vehicles compared to over 12 lakh units in the corresponding period, a year ago. “Lockdown and other containment/precautionary measures resulted in disrupted supply lines and a sharp decline in overall demand,” the company said. ITC Limited posted a 26 percent drop in Q1 net profit. The provisioning and contingencies of HDFC Bank, the largest in the private sector, showed a huge 48.9 percent jump at Rs.3,891.52 crore. The banking sector is fearing a NPA pileup.

According to analyst estimates compiled by Bloomberg, India’s biggest software services exporters are expected to report a revenue decline in Q1 as decisions on deals and project execution got delayed after the pandemic froze economic activity. The estimates pegged the aggregate revenue of the five major IT companies—Tata Consultancy Services, Infosys, HCL Technologies, Wipro and Tech Mahindra —to decline 2.5 percent sequentially in the three-month period. The drop in operating and net profit is expected to be much sharper. All activities, barring essential services, were shut as the novel coronavirus outbreak forced the nation to impose the world’s biggest lockdown for more than two months. That led to a rise in the cost for IT firms as most employees worked from home. The companies also lost billings as they generate most of their business overseas and the bulk of it comes from clients in financial services, manufacturing and communications sectors. On the other hand, analysts at Kotak Institutional Equities estimate Nifty earnings to fall 30 percent from a year ago. Excluding banks, earnings are expected to drop as much as 47 percent. “In the best case, we are working at 60-70 percent of normal in most sectors in Q1," said Pradeep Kumar Kesavan, senior vice-president, Elara (rpt. Elara) Securities.

The possibility of a better time for industry looks gloomy. It is extremely difficult to project if companies that have been reporting weak results and also provide a dreary outlook, things are going to be different soon. However, SBI Capital Markets feels that the situation may normalise towards the end of the financial year. “Earnings growth will have to show a gradual pickup over the course of the year, and management commentary will be crucial. If the earnings are much worse than previously anticipated, then it could derail both FY21 and even FY22 earnings estimates," noted Rajiv Sharma, head of research, SBI Capital Markets. “What is discounted is that the first three quarters won’t be normal, but somewhere there is a hope that the fourth quarter will be normal, and demand will be back. But if that does not happen, then FY22 estimates could be cut," he added. A recent report by Japanese brokerage Namura said the April-June quarter would be the 'nadir' from a growth perspective and the economy will contract by 15.2 percent and the GDP will never come into the positive territory in the remaining part of this fiscal. It estimated contractions of 5.6 percent in September quarter, 2.8 percent for December quarter and 1.4 per cent in the March quarter, which will give a full fiscal GDP at negative 6.1 percent.

However, much will depend on how the government is able to fight the pressure from multiple fronts — the pandemic, prolonging economic downturn and deteriorating situation along India’s geographical borders with China, Pakistan, Nepal and Bhutan. The growing political conflict between the ruling party in the union government and some opposition-ruled states has added to the pressure. The situation throws a big challenge before the government to stay cool and prepare contingency plans as well as lasting programmes to tackle each of the problems. A weaker economy will further weaken the national government and public morale. (IPA Service)