Will India Inc see strong in Q4 despite input cost pressures?

India Inc has weathered several headwinds since the start of the fourth quarter of the 2021-2022 fiscal year. If supply chain hurdles and spiraling inflation weren’t enough, the Ukraine-Russia war exacerbated the turmoil this quarter. Street is also anticipating heavy pressure on margins despite the many rounds of price increases taken across sectors. However, analysts expect fourth-quarter performance to be resilient, aided by the economic recovery. The Indian economy is seeing a strong recovery – evident from all-time high GST collections in March, says Santosh Meena of Swastika Investmart. Meanwhile, according to Motilal Oswal Financial Services, Nifty has not seen a significant decline in profits so far, thanks to improvements in minerals and oil and gas and little impact in the IT and BFSI sectors. However, if the input cost situation does not improve and price increases become inevitable, we are not very far from some demand imbalance and profit cut even for Nifty. Analysts also remain bullish on India’s fourth-quarter.

HSBC Global, for example, expects Nifty’s earnings to grow for fiscal year 22 and 2013 at 37% and 19%, respectively. It also estimates earnings per share growth for fiscal year 23 Nifty50 at 18.9%. However, the brokerage cautioned about rising commodity costs, saying: “A prolonged period of higher commodity prices could be a double blow to corporate profits due to lower margins and lower demand, which increases the risk of lower profits.” A closer look reveals that auto and consumer goods companies are among the hardest hit sectors. Their concerns about the rising cost of inputs have been persistent over the past few quarters, and the ongoing turmoil has only added to their problems. Santosh Meena of Swastika Investmart expects cement distributors, OMC companies and city gas to be the other defaulters in the fourth quarter. Against this backdrop, markets are looking forward to fourth-quarter updates by companies on Wednesday, ahead of earnings season. The Reserve Bank of India will also start its three-day monetary policy meeting later today, which could keep stocks and bond yields volatile. Globally, investors will be tracking the FOMC meeting minutes, progress in the Ukraine-Russia negotiations and the Covid-19 cases in China.

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