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Expectations for Q3 – Merrill

January 6, 2009

Indian Market is bracing for a poor set of results from corporate India for the quarter ended December 2008 – how bad ? Merrill bottom-up forecasts point to a slight drop in EBIDTA for the Sensex companies – we have not seen this in the past 10 years. Or there is likely a 2% increase in net profit largely due to – bond gains for banks and lower taxes, EPS would drop 1%. Nine out of the 30 Sensex companies are likely to report a decline in profits.

Sensex to Kiss 7,000 in next 6 Months:
The poor quarterly earnings are well flagged but expectations of a quick earnings recovery following the stimuli package by the government may prove unfounded. Merrill think earnings will continue to disappoint for most of CY09 and are expecting a slower growth rate of 5-10% in Sensex EPS in FY10. Constant earnings downgrades, political uncertainties and no more government stimulus measures are likely to bring the market to a lower level (expect an index of 7,000) over the next 6 months.

Margins are expected to remain under pressure dropping by an estimated 90bp. Autos, cement and pharma companies are likely to report a drop in profits for the December quarter, led by falling sales and margin pressure Potential out performers are – Bharti Airtel, State Bank, Indian Bank and Educomp while Wipro, Maruti, M&M, Unitech, Tata Steel are likely to be under performers.

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