The June quarter is not likely to be too flattering for Indian corporate top lines. IN fact, CRISIL expects Q1 revenue growth to be the weakest in 8 quarters. According to a report by CRISIL, the Jun-19 quarter could see sales growing by just about 5% for all the non-financial services put together. The CRISIL study does not consider banks and insurance companies in its universe. According to CRISIL, this pressure on top line could essentially come from autos and FMCG, where the impact of the slowdown in consumption is the highest. IT is expected to face profit pressure on higher costs.
The bad news on the auto front appears to continue. Passenger vehicle sales slumped by over 17% in June on a YOY basis. The sales of passenger vehicle fell for the 8th month in succession as a slowdown in consumption had a distinct impact on the sales of these auto companies. The weak consumption combined with stress in the balance sheets of NBFCs has result in a sharp fall in auto demand in the last one year. For the fiscal year 2018-19, auto stocks have been among the worst stock market performers. Most of the auto stocks are already quoting in the markets at multi-year low levels.
The burden of higher impost oil may not really hit the downstream oil companies; at least that is what the HPCL chief believes. Reacting to the worries in the market about the impact of higher excise and infrastructure cess on oil companies, HPCL’s M K Surana opined that it may not really impact the performance of OMCs in any significant way. Surana pointed out that since these were pass-through taxes, they would be passed on to the end customer and the burden may not be felt due to weak global crude prices. The government will be skimming some of the benefits of lower crude prices.
The world second largest economy may be in from troubled times. China growth could fall to a 30 year low of 6.2% according to Reuters’ poll. The Reuters poll estimates that the GDP growth in China could slow to 6.2% for the full year, the slowest growth it has seen in the last 30 years. China has taken a big hit from the trade war with the US as well as the crackdown on shadow banking. Meanwhile, Jerome Powell has hinted that the US Fed could cut its benchmark rates by 25 basis points in its July 31st meeting. A rate cut now almost appears to be a certainty based on Powell’s testimony.
The Indian stock markets have seen nearly $40 billion of wealth wiped out since the budget. Certain announcements in the budget like the higher surcharge on HNIs, tax on buybacks and the proposed hike in public shareholding have led to sustained selling in the stock markets. On Wednesday, the markets reacted negatively to Trump’s warning over India imposing tariffs. Meanwhile, the CBDT chief has assured that FPIs can opt for corporate structure to avail lower tax liability. Even as the markets have been demanding a clarification from the government about the impact of higher surcharge on FPIs, the CBDT has called upon the FPIs to convert themselves into corporates to reduce their tax outgo. Currently, many FPIs that are structured as trusts (for reduced compliance) have a problem.
Portfolio managers are feeling the heat of erratic markets. Nearly 80% of the PMS schemes gave negative returns in June 2019. Even as a majority of PMS schemes performed badly, the large cap based PMS funds did relatively better than the mid-cap and the small-cap ones. The broader indices fell by 4% during the month so the best performer among the PMS schemes could only generate positive returns of 2%. Most PMS schemes look for alpha in smaller stocks and these stocks have been the most volatile. The negative performance has been the case with the PMS schemes almost across the board.
