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October 12, 2018

Cost pressures weigh on Q2 revenues

Quarterly update of industry performance

CRISIL Research expects corporate revenue growth, excluding that of banking, financial services, insurance, and oil companies, to print at ~12% on-year for the quarter ended September 30, 2018. This would mark the fourth consecutive quarter of double-digit growth.


Broad-based recovery across consumption-linked sectors, coupled with higher commodity prices, is helping India Inc grow at a faster clip.


We expect most of the consumption-linked sectors to expand ~10-15%. The growth will be driven by continued positive momentum in consumer sentiment, a low base effect for certain sectors due to the Goods and Services Tax (GST) rollout in the same quarter last fiscal, and growing rural demand.


Commodity-linked sectors, such as steel products, natural gas and petrochemicals, will likely grow sharply due to increasing realisations. High volume-driven growth would continue in cement, led by ramp-up in capacities by several players and greater demand from increased government spending in the urban infrastructure and affordable housing space.


We forecast export-linked sectors to get a boost from the sharp depreciation of the rupee this quarter. Improved spending in the United States (US) market and growth in specific categories will help information technology (IT) services. Growth would be led by improving domestic demand for pharmaceuticals, even though constrained by continued pricing pressure. Textiles, specifically cotton yarn, and the two-wheeler segment are also expected to be buoyed by better demand from key export markets.


Conversely, we expect sugar and telecom services to be negatively affected due to pricing pressures in their respective markets.