The October-December quarter (Q3) is expected to remain muted as various stimulus measures have failed to show the impact on demand so far, a report by Prabhudas Lilladher forecasts.

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The report added that the quarter will also show the impact that the CAA protests had on the economy, tight liquidity, the prolonged impact of demonetisation and the GST drag. However, rising crop prices and good rabi sowing have revived hope of a rural demand pickup towards the fag end of 4QFY20.

The overall sales are expected to grow 0.5 percent (-3.5 percent during Q2), while profit before tax (PBT) growth is estimated at 13 percent (-0.92% during Q2), the brokerage predicted. It estimates some rebound in growth driven by banks, automobiles, and cement sectors. However, excluding BFSI sales and PBT is expected to grow by only 0.1 percent and 1.3 percent respectively, it noted, adding that sales and PBT growth excluding oil and gas are expected to be 5.1 percent and 13.6 percent respectively.

The brokerage also pointed out that the fiscal situation remains alarming with poor tax collections. Budget 2020 will be the key monitorable with a strong possibility of fiscal deficit moving beyond 4 percent (budget estimate 3.3 percent).

Here's how the brokerage expects various sectors to perform in Q3:

Auto: As per the report, the inventory correction and production cuts continued even in Q3, however, record festive sales helped sharp reduction in channel inventory across segments. Except for JLR, it expects 60-80 bps QoQ EBITDA margin expansion to 10.8 percent (-90 bps YoY), led by the benefit of soft raw material prices to be partially offset by higher discounts and weak product mix. It expects revenue/EBITDA/PAT decline of -7 percent/-13.6 percent/-26 percent.

Aviation: Discounts/offers on airfares in the strongest quarter indicated weakness in the fare environment which is likely to negatively impact yields, stated the brokerage, adding that although ATF prices were down 11.9 percent YoY in Q3, cost per available seat kilometre (CASK) is likely to remain under pressure for both IndiGo and SpiceJet.

Banks: In the banking segment, the corporate bank will be in limelight on the back of strong recovery from few cases from NCLT driving earnings, improvement in asset quality, lowering slippages and improving provision coverage ratio, said the report. It further noted that loan growth will remain disappointing for many banks as indicated by RBI’s macro data, however, most large private sector banks will see full tax benefit coming into earnings.

NBFC: In Q3, dampened confidence in NBFC models continue to reflect in the persistent liquidity pressures, higher funding costs and cautious lending, the report quoted.

Although the brokerage does not expect meaningful delinquencies and credit costs for Q3FY20, it added that the sector remains prone to credit quality risks pertaining to select industries (microfinance, real estate, high-value corporate lending).

Capital Goods: The brokerage expects Q3FY20 execution performance to be moderate due to slowdown in infra spending primarily from state government and sluggish demand from export markets.

"During the quarter, we have witnessed some traction in the order inflows

activity which is expected to result in 6.5 percent YoY growth versus a de-growth of 6 percent sequentially," stated the report.

The brokerage believes that the recent announcement of Rs 102 lakh crore investment towards the infrastructure sector from National Infrastructure Pipeline (NIP) would lead to much-needed investment push thereby creating a massive opportunity for the sector in Q3.

Consumer: As per the brokerage. demand remained sluggish in Q3 across both rural and urban India and hopes of revival have been dashed to the ground. CAA Protests will further disrupt the retail consumption, it noted.

While, food products and Jewellery show some green shoots in demand while home and personal care remained under pressure.

However, Q4 sales should get a boost due to delayed winter, it said, adding that it believes rural demand is close to getting bottomed out with expected recovery from the fag end of Q4 given higher food inflation and expected increase in Rabi crop given normal monsoons.

Infrastructure: According to the report, the construction industry presents an attractive investment opportunity as the Government’s thrust on infrastructure spending would continue.

Earlier this week, the task force on the National Infrastructure Pipeline (NIP) has released its first report laying out detailed guidance on the proposed pipeline of Rs 102 lakh crore capital investment till FY25 in the infrastructure sector with a focus on sectors like roads, railways, water, buildings, urban infra, and power among others.

It expects order momentum to pick up from Q4FY20.

IT: The brokerage expects moderation in revenue growth due to tepid growth in BFS, retail and manufacturing verticals with higher furloughs and client-specific challenges for few companies. Tier-1 companies are likely to report sequential growth between 0.9-2 percent in constant currency terms while tier-2 firms may grow 0.5-3 percent in constant currency terms, it added. Revenue growth of tier-1 will decelerate on YoY due to a higher base and slowdown in key verticals, as per the report.

Oil and Gas: The brokerage expects Q3FY20 Oil sector earnings to be strong with a healthy performance of gas players and OMCs. It added that RIL earnings will be led by a recovery in refining earnings. However, upstream earnings are likely to be muted as marginally higher crude oil prices will be negated by a cut in domestic gas prices.

(Upstream oil and gas production and operations identify deposits, drill wells, and recover raw materials from underground. They are also often called exploration and production companies.)

Pharma/Healthcare: The brokerage expects 5.8 percent growth in the sector as US revenues are likely to be tepid due to concerns over regulatory issues in FY20 YTD.

While price erosion US generics has been closer to its normalised rate 6-8 percent, the quantum of erosion remains company-specific and depends on the therapeutic presence, it added.