Revenues of corporates are expected to log a robust 12.1 per cent year-on-year growth in the second quarter of FY 2019, nearly twice the 6.4 per cent growth in the corresponding quarter of last fiscal, CRISIL Research said on Thursday. The rise in revenue growth will be due to low-base effect caused by the rollout of the Goods and Services Tax (GST) and higher realisation for steel makers.
The forecast is based on CRISIL Research's analysis of 365 companies (excluding those from the banking, financial services and insurance, and oil sectors), which account for 65 per cent of the market capitalisation of the National Stock Exchange.
"Demand recovery is expected to be driven by discretionary, consumption-led sectors such as airline services, automobiles, fast-moving consumer goods (FMCG) and retail. While automobiles are expected to see an 18 per cent growth in sales, airline services should see passenger traffic rise 16 per cent on-year," said Prasad Koparkar, Senior Director, CRISIL Research.
Retail, FMCG and automobiles will benefit from the low-base effect in the second quarter of fiscal 2018. Makers of steel and aluminum, and coal miners will benefit from improved sales realisation, while cement manufacturers will be helped by higher volumes. Investment-linked sectors such as housing and capital goods have also been supportive because of public spending, the research noted.
However, higher crude oil prices and falling rupee are also skewing the input cost math for companies. Crude oil is up 45 per cent year-on-year in the second quarter, while the rupee, which had depreciated 4 per cent in the first quarter, has lost 9 per cent more in the second.
"Oil and rupee will impact the cost structures of most sectors. Additionally, domestic prices of coal, long steel, flat steel and aluminium are expected to rise 15 per cent, 14 per cent, 17 per cent and 12 per cent, respectively, on-year. That would add to the cost pressure for end-use sectors," said Rahul Prithiani, Director, CRISIL Research.
The report added that airlines, automobiles, aluminium and cement will be the sectors bearing the brunt of rising cost of raw materials. However, margins for steel are expected to improve significantly due to an uptick in realisations. Conversely, the rupee's fall will prop revenue growth for export-linked sectors, especially IT and pharmaceuticals, it said.