Profit Growth Will Dip – Will the Market?

Citi expects 4Q08 profit growth for the Sensex at 19%, Sensex (ex-Oil) at 11%, and Citi India Universe (ex-oil) at 12%. This is a continuation of the moderation trend of the last few quarters; but ex-oil, it is the most pronounced dip in growth rates over the last few quarters. There is potential downside risk, too – from one-offs, on FX derivatives mark-downs.

The topline should perk up a bit after 5 moderating quarters – 20% up, and relatively broad based across sectors. Margins are however likely to head down; estimate a 90bp dip yoy, and about the same qoq (though there is seasonality), offsetting the top-line buoyancy.

Higher profit growth – Brokerages (46%), Hotels (37%), and Petrochemicals (32%). The offsets – Metals (-8%), Oil & Gas (-26%), and Pharma (3%). Citi expects 20% earnings growth for FY09; but see risks from a slowing economy, higher costs and market risks (FX derivatives, equity markets slowdown). 4Q08 results could be more directional than recent quarters. Unlike in the past, the market seems to be factoring in meaningful downsides, expectations are low, and ‘no new bad news could well be good news’