Bank of America Merrill Lynch feels earnings expectations for the Sensex for FY16 are high, despite recent downgrades. (PTI)

Corporate India might see operating margins expand, thanks to the collapse in prices of commodities, but there might not be much more to cheer about this earnings season. With retail demand anaemic and capital expenditure slow, neither producers of consumer goods nor makers of industrial machinery are expected to fare too well. The economy remains sluggish — GDP in the June quarter grew just 7% year-on-year — and data across sectors show few signs of a pick-up in volumes.

It’s not surprising then that Kotak Institutional Equities expects headline Sensex earnings for Q2Y16 to fall 2.8% year-on-year. Or Bank of America Merrill Lynch feels earnings expectations for the Sensex for FY16 are high, despite recent downgrades.

“Consensus Sensex EPS growth for FY16 is around 17% on a bottom-up basis. We expect this to get downgraded to 8%-10%,” the brokerage wrote on Tuesday.

Firms like Bajaj Auto, for instance are expected to see only a muted increase in revenues since the growth in volumes during the quarter hasn’t been particularly robust. With only moderate increases in the minimum support price for farmers rural demand has remained weak impacting sales of two wheelers — Hero MotoCorp’s volumes, for instance, were down 7% in the three months to September. It’s possibles sales of consumer staples too might have been hit though the impact of the subnormal monsoon can be better gauged once the size of the harvest is known. Experts believe, however, that urban incomes that typically support rural incomes have been almost missing this time around, hurting purchasing power. To be sure, government spending has risen 8.8% y-o-y between April and August but much of the capex has been limited to a couple of sectors and that might not have been enough to give purchasing power a meaningful boost.

But as Nandan Chakraborty, managing director, research, Axis Capital, observes, the six months to March or the second half of the year might see companies post better volumes as the economy recovers on the back of lower interest rates.

Meanwhile, analysts predict moderate to negative earnings growth for the Sensex set of companies in Q2FY16. BofA-ML doesn’t see any green shoots just yet and expects headline numbers to be weak. The brokerage feels the topline will stay subdued and could even contract for a whole host of companies. “The worrying aspect of the earnings is that even excluding commodities, sales growth is expected to remain muted at 3.5%,” equity strategist Anand Kumar wrote, adding that the only silver lining could be improvement in y-o-y margins.

Automakers and manufacturers of consumer goods companies are likely to be the biggest beneficiaries of softer commodity prices in a sluggish demand environment where revenues are slowing down. Andrew Holland, CEO of Ambit Investment Advisors, believes that lower commodity prices have already helped corporate India post better margins, adding, however, that earnings downgrades may continue for commodity-linked businesses. Indeed, metals firms will turn in modest performances with most of the prominent steel producers set to report losses.

According to KIE steel companies could see a sequential fall of anywhere between 4% to 13% in operating profits, on the back of more than 5% quarter-on-quarter drop in domestic prices. “Prices were weak across product segments including flats and longs and hence profitability of all steel names will be under pressure,” the brokerage said. While steel producers are expected to benefit from the recently implemented safeguard duty of 20% on hot-rolled coil products, the benefits may not be visible during Q2FY16 given that the implementation of the duty took place mid-September.

The impact of a demand slowdown will be seen across the board and also in the performances of banks. Despite healthy treasury gains, which are likely to cushion the bottomlines of banks, a slower pick-up in credit growth coupled with base rate cuts could impact margins. For the fortnight ended September 18, non-food credit growth stood at 9.8%; credit offtake has shrunk between April and September with companies tapping the money markets for short-term working capital needs.

While public sector investments have started to gain traction, it is yet to reflect in the performance of capital goods firms as demand remains weak and there is overcapacity. Order books at engineering firms are not expected to see any big jumps with balance sheets remaining over-leveraged.

Sadbhav Infrastructure’s (SIPL) entire portfolio will start collecting toll in mid-FY17,  driving 48%/57% revenue/Ebitda CAGR over FY15-18E.

Our numbers build in a 7-8% traffic growth and 1-3% WPI increase and are still lower than the management’s estimates. While net earnings may remain negative up to FY18, CFO/CE will jump to 13.3% from 5.1%. We expect net debt:equity to reduce to 0.8x in FY18E vs 1.5x in FY15, as it repays the debt in SIPL standalone.

P/B (absolute or relative) is not an effective valuation measure for SIPL, given large asset additions (hence depleted net worth) and no like-to-like peers. Our NPV-based SOTP valuation of SIPL’s assets implies 2.4x historical equity invested but a reasonable 1.4x restated equity  these multiples are highly sensitive to traffic and interest rates (1% change traffic/cost of debt leads to 10%/6% valuation impact).

Post the recent equity raise, minority stake sales and refinancings, the portfolio will be Rs 5.2 billion cash surplus in FY15-18 post meeting equity needs. Few Indian infra developers can display such creditworthiness. Consequently, SIPL has been using this advantage with bankers through refinancings.We have yet not built in the recent RBI rate cuts, but we build in gradual declines. Over the long term, key value-accretive refinancing can be through substitution of bank debt.

Coffee Day Enterprises on Wednesday fixed the price band at Rs 316-328 per share for its initial public offering (IPO). The IPO opens on October 14 and closes October 16, through which the company aims to raise Rs 1,150 crore – the biggest IPO since the public issue of Bharti Infratel in December 2012.

The Bengaluru-based company will dilute about 17.55% stake on post-offer basis that will value the company at Rs 6,750 crore. The company aims to raise R 340 crore by allotting shares to anchor investors on October 13.

Kotak Mahindra Capital Company, Citigroup Global Markets India and Morgan Stanley India Company, Axis Capital, Edelweiss Financial Services Limited and YES Bank are the book running lead managers for the issue.

The company intends to use its proceeds to pay back existing debts worth Rs 632.8 crore, while rest of the amount would be used for general corporate purposes. Out of the total shares on offer, 50% are reserved for qualified institutional bidders (QIBs), while 35% are for retail investors.

Coffee Day Enterprises is the parent company of the Coffee Day Group and operates coffee business through a subsidiary, Coffee Day Global and its subsidiaries. The company also has presence in real estate sector through a subsidiary Sical Logistics. It also owns 16.75% equity holding in Information Technology company Mindtree.
Coffee Day is the 16th IPO to hit the market in CY15, with 15 companies having raised close to Rs 6,500 from primary markets so far.

According to data from the Association of Mutual Funds in India (Amfi), investors withdrew a net Rs 77,142 crore in MF schemes last month. (Thinkstock)

Investors pulled out over Rs 77,000 crore from mutual fund schemes in September, making it the highest outflow in six months, with liquid and money markets contributing the most to the outflow.

This comes on top of net outflow of about Rs 46,750 crore from mutual fund products in August.

According to data from the Association of Mutual Funds in India (Amfi), investors withdrew a net Rs 77,142 crore in MF schemes last month.

This was the highest outflow in a single month since March, when the industry had seen a withdrawal to the tune of Rs 1,09,897 crore.

Industry insiders said outflow from Mutual Fund (MF) schemes last month was mainly on account of huge redemptions in liquid and money market funds.

However, investors continued to maintained bullish stance on the equity schemes.

Liquid or money market fund category witnessed Rs 60,861 crore being pulled out last month, income funds too saw net outflows of Rs 26,717 crore. However, equity and equity linked schemes saw an inflow of Rs 5,444 crore.

Liquid and money market funds invest mainly in money market instruments like commercial papers, treasury bills, term deposits and certificate of deposits. These funds have a lower maturity period and do not have any lock-in period.

With the latest outflow, the net inflow in the schemes stands at Rs 80,895 lakh crore in the April-September period of the current fiscal, 2015-16.

The asset base of the country’s 44 fund houses fell to Rs 11.87 lakh crore last month from Rs 12.55 lakh crore in August.