Banks and NBFCs see stress

If you consider the banking and NBFC stocks, they saw asset quality stress and the trend began with HDFC Bank. After that, almost all the banks and NBFCs that announced results have seen some pressure on the numbers coming from the lag effect of COVID 2.0. The RBI did not extent the moratorium forcing banks and NBFCs to make provisions. Other income has been a compensating factor for financials across the board, even as core revenue sources have suffered. 

Steady quarter for Oil

The ball was set rolling by Reliance that announced stellar results for its O2C business with record profits in Q1. The other refining companies that followed suit, benefitted from 2 key factors in the quarter. Firstly, crude prices were at a higher level on a yoy basis. This led to higher price realizations and better GRM or gross refining margins in the case of most refining companies. Secondly, the higher prices of crude, closer to $75/bbl ensured that the inventory translation gains also boosted the profit numbers of oil companies. Overall, the first quarter has been positive for the oil companies. 

FMCG and autos face input pain

While FMCG and autos may be different sectors altogether, they were driven by the similar set of factors in Q1. Both the auto companies and the FMCGs had to contend with higher input costs during the quarter. FMCG companies staved off this cost challenge better by passing on price hikes and tweaking inventories for efficiency gains. Secondly, the growth numbers were impressive on yoy basis due to the low base effect. However, the numbers came under pressure when looked at on a sequential basis. That is when the COVID 2.0 impact became visible. Both being consumer facing businesses, they bore the brunt of the COVID 2.0 and the lag effect of it. 

Macro picture is neutral

At a macro level, we have had sectors that have done well. IT and metals are two examples of sectors that have shown good traction. However, banking and NBFCs are clearly under pressure as is insurance. These 3 sectors have total weight of more than 45% in the Nifty and hence the overall profit growth is likely to be under pressure. On a yoy basis, there would still be growth due to the low base effect, but COVID 2.0 will ensure that sequential growth remains negative and also remains stressed in the quarter. In the Jun-21 quarter, cost cut opportunities were limited and input cost inflation posed a big risk. Hopefully, the next quarter should be smoother!