Indian companies' earnings and revenue growth will likely remain muted in the second quarter of the current fiscal year due to soft commodity prices and weak investment demand, the research arm of ratings firm CRISIL said on Wednesday.
"Fragile consumption demand, especially in the rural areas, weakness in investment-linked sectors, and the meltdown in global commodity prices will more than offset the healthy top-line growth expected in the export-oriented sectors," CRISIL Research said in a report.
CRISIL, owned by Standard & Poor's, expects companies' revenues to rise barely 1.6 per cent year-on-year in the July-September period, marking the fifth consecutive quarter of single-digit growth. Earnings before interest, tax, depreciation and amortisation is expected to grow 2 per cent, it said.
According to the report, aggregate revenues of 600 companies across 60 sectors had grown 1.9 per cent in the first quarter.
The report said that low commodity prices will push growth lower for steel and petrochemical industries. Revenue growth at automobile companies will also be low, it added.
However, a weak rupee will help export-focused companies. “Export-linked sectors will be the only bright spot in terms of top line. Though merchandise exports have been declining for several months now, listed exporters (primarily in the IT services and pharmaceuticals sectors) are expected to grow around 13 per cent in the September quarter, helped partly by the 7 per cent depreciation in the rupee," the report said.
The report also said that public banks will see their net interest income grow only 4 per cent from a year earlier during the September quarter. But private-sector banks will outperform with credit growing at 20 per cent and net interest income rising 18 per cent. Private-sector lenders also be better than their public-sector peers in terms of bad loans, the report said.
While the Reserve Bank of India has cut interest rates to boost investment and demand, the impact would not be felt till the second half of the fiscal year.
"Revenue growth is expected to improve in the second half of the current fiscal following a mild uptick in consumption, increased government spending, and the statistical low-base effect,” the report said. Still, revenue and earnings growth for the entire fiscal is likely to remain in single digits, it added.