Robust Q3 FY11 Earning my Indian corporate companies.

Profits of 248 listed firms that have declared their earnings for the December quarter grew by 23.5%, the highest in three quarters. The performance is impressive, especially as it is on a higher base, but these are early days yet as a majority of firms are yet to declare results.
Sales for this set of firms grew at a robust 20% over the year-ago period, having advancing at a little faster than that in the previous four quarters.
Unlike the June and September quarters, when most firms had the advantage of a low base, the December results come on a base of high sales and profit growth numbers in the year-ago period.
India, along with the rest of the world, had seen a slowdown in growth as a result of the global credit crunch following the collapse of investment bankLehman Brothers Inc. in September 2008.
The growth rate came down to 6.7% in fiscal 2009 and corporate sales fell before recovering sharply.
It was in December 2009 that Indian firms, for the first time since the credit crisis, posted double-digit sales growth after witnessing a decline in sales in the previous three quarters.
“While these are early days, sales and earnings growth on a high base shows the resilience of the recovering economy,” said Mohan K.R. Swamy, head of research at the Royal Bank of Scotland Plc’s Indian equity division.

Aggregate earnings of the 16 Nifty firms that have declared their results so far grew 16.1% in the December quarter after increasing by 15.27% in the previous three months. Net sales of these firms grew at nearly the same pace.
The Nifty comprises the 50 most liquid stocks traded on the National Stock Exchange.
Despite concerns of slowing economic growth owing to the weak factory output growth of 2.7% in November and low import expansion of 6.8% in October, corporate sales have continued to grow at a robust pace.

Profit growth in most companies has been in line with analyst expectations. Banks and IT firms which account for most of the bigger firms that have declared earnings so far have not seen any unanticipated contraction in margins. True to expectation, IT firms posted high revenue growth.
The revenue guidance and earnings growth of most IT firms have been a positive surprise and upgrades could be likely, said Alex Mathew, head of research at Geojit BNP Paribas Financial Services Ltd.
The stock of Tata Consultancy Services Ltd (TCS), which beat Street expectations with 32% profit growth, has risen 8.4% since 17 January when it declared its earnings. That has pushed TCS to the second rank in terms of market value behind Reliance Industries Ltd, dislodging Oil and Natural Gas Corp. Ltd (ONGC).

Reliance had a market value of Rs.3,22,825 crore as of the Friday close, TCS was at Rs.2,37,332 crore and ONGC at Rs.2,36,356 crore.

Infosys Technologies Ltd, which declared a profit growth of 11.5% on 13 January saw its stock fall 1.2% that day and 3.7% more since then as the much anticipated hike in revenue guidance did not come about.

Bank earnings too have been fairly decent, with Axis Bank Ltd posting better than expected earnings growth of 35.8%. Its stock is up 6.9% since it declared earnings on 17 January.
Capital goods bellwether Larsen and Toubro Ltd saw profit rising by 10%, but a slowdown in order book growth emerged as a major concern.

The earnings season will be crucial in setting market direction, which has been weak in the past few weeks.

The Sensex has fallen 5% in the past month to 19,007.5 over fears that monetary tightening to fight inflation may curb consumer demand and raise borrowing costs for firms already facing rising input costs.

The Reserve Bank of India (RBI) is expected to hike policy rates in its review of monetary policy due on Tuesday.

The RBI monetary policy and earnings performance will be carefully watched by most investors who have decided to stay away amid the uncertainty surrounding the market in the past few weeks, Mathew said.

Foreign institutional investors have turned net sellers after a gap of seven months and sold $900 billion (Rs.41.13 trillion) so far in this month.

Most analysts still stand by the consensus estimate of 20% growth in corporate earnings for the current fiscal as well as fiscal 2012. Foreign investors will continue to invest in Indian equity as long as growth is in place, they said.

“Valuations look fair after the correction and if inflation and commodity prices cool down in the next three-six months, Indian markets will appear more attractive and foreign flows would increase,” said Ajay Parmer, head of research at Emkay Global Financial Services Ltd.