Commodity sectors face pain in September quarter

A Mint analysis of 257 companies of the BSE 500 index showed a 28% increase in revenue compared to a year ago, while profits grew by just 3%. The companies are still in the process of filing their Q2 results, and the analysis is based on the results available so far.

The performance is lower than the June quarter, when these companies’ revenue and net profit grew 37% and 9%, respectively. This was impacted by the performance of metals and oil and gas producers, who struggled in the September quarter as key commodity prices fell marginally. Excluding these sectors, the companies’ overall profit grew 25% compared to a year ago, while sales grew by 21%.

Alok Aggarwal, Portfolio Manager, Alchemy Capital Management said, “Total earnings were dragged down by global commodities (prices). Despite a slight decline, commodity prices still rose as compared to the pre-Covid period.

Meanwhile, banking sector profits up 46% supported earnings growth so far. A sub-sample of companies excluding this segment (banking, financial services and insurance, or BFSI) reported revenue growth of 33%, but profits fell 19%.

On a sequential basis, revenue and profit grew by 3% and 15%, respectively. However, going forward, fears of a global slowdown in export-facing sectors and slowdown in some parts of the developed world may have an adverse impact, Agarwal said.

In addition, with inflation warming, consumption may suffer, which may affect firms’ volume growth. VK Vijayakumar, chief investment strategist, Geojit Financial Services, said, “Higher inflation and rising rates may affect demand, but it is likely to be marginal.” “The negative impact on demand will be partially offset by strong growth impulses in the economy. Demand is strong for the premium segment.”

Some sectors are already in the grip of recession. Sectors such as consumer durables saw a sequential decline of 15% in revenue, FMCG sales declined 0.8%, while construction and real estate firms saw a 9% decline in revenue. Meanwhile, rising input cost pressures showed signs of easing in the September quarter.

Raw material spending as a percentage of total income declined by nearly 500 basis points from a peak of 64.2% in June 2022. “Input cost pressure appears to be easing, although its impact is visible with a lag,” Agarwal said. With a correction in crude oil and industrial metal prices, analysts expect raw material costs to fall further in the coming quarters, which should augur well for sectors that depend on commodities as raw materials. .