India: Barely Hanging In!

+5%: in line with expectations, but with a weak bias — India's earnings growth continues to tread middle growth: +5%yoy for Sensex ex-oil (and 6% for CIRA ex-energy) remains in-line with expectations (+7%), relatively modest and simply not decisive enough. It has a slightly weak bias: 52/45 downside/upside surprises, more sectors disappoint than surprise positively, and management commentary at aggregate has been relatively cautious. While bottom up and global macro challenges rise, India's earnings growth expectations (20%) continue to hang on, but just about.

Sales still surprise and margins still face pressure — We expected sales growth to surprise on the downside, and margin pressure to surprise on the upside: was not to be. Sales momentum remains strong (+19% for CIRA univ exfin,energy) and margins continue to face pressure (-74 bps qoq). However, sectoral divergence is rising, interest cost pressures are yet to show up meaningfully and trends among Sensex companies and broader CIRA coverage are largely consistent – suggesting growth/profit trends are broad-based.

More laggards than leaders — It is a mixed quarter, with a weak bias: with 6/3 downside/upside sectoral surprises, 12/15 sectors generating positive yoy profit growth, and only four sectors generating positive margins qoq. The banks and Capital goods sectors have been the big laggards on the downside: with positive offsets in Energy (in part accounting), and Metals and Cements. The defensives – consumer companies have held their own, while Autos have also done a bit better than expected.

Quarter's take-away; it's tough but corporates hanging in there — The earnings season is – in our view – not decisive. It reflects the broader growth,profitability and global macro challenges that businesses are facing; but suggests slower/weaker growth, not an earnings collapse. Our Sensex earnings growth estimates for FY12/FY13 stand at 20%/16%, and we would expect GDP growth,the commodity and energy pricing cycle to keenly influence earnings trends from here.