Growth momentum to moderate as commodity-driven growth cycle reverses

CRISIL Research expects 8-9% on-year revenue growth for corporates, excluding banking, financial services, insurance, and oil companies, in the fourth quarter of fiscal 2019. The growth momentum is expected to slow down compared with the first three quarters of the fiscal when the average growth was ~16.5% on year.

We expect the moderation to be mainly driven by lower growth in key sectors, especially commodities, where prices are expected to fall. This is a reversal in trend from the previous few quarters when topline was driven by high realisations in commodity segments.

Prices of steel (flat) are likely to have remained flat on year while prices of steel (long) and aluminum are expected to be ~1% and ~4% lower on year, respectively. Similarly, an expected fall in crude oil prices may have impacted the end prices of petrochemical products, causing lower growth for this segment as well.

Further, among the consumer-driven sectors, automobiles continues to witness a slowdown in the face of a rise in ownership costs. This has impacted ancillary sectors of auto components and tyres, which have also witnessed a moderation in growth.

On the other hand, the revenue growth is supported by healthy consumption demand for key consumer segments such as airline services and organised retail, which are expected to grow in the range of 15-20% on year. Fortunes for the sugar sector seem to have reversed, supported by a hike in its minimum selling price aiding topline growth.

Additionally, the rupee is expected to be ~10% weaker on year, which will boost export-oriented sectors such as information technology (IT) services and pharmaceuticals, which are projected to grow ~17% and ~11% on year.

Another point to be noted is that, growth in the fouth quarter comes on a high base as the year-ago period had seen a healthy 12% revenue rise. Conversely, growth in the first half of the last fiscal was only ~7% on an average.