Muted performance on back of rising interest cost coverage universe (ex-BFSI) is expected to post a YoY revenue growth of 21.3% while QoQ growth would be modest at 2.1% since Q2 is a cyclically weak quarter for most sectors. At the same time, EBITDA growth of 7% YoY will not mirror the revenue growth as most of the companies under coverage will face the full blown impact of high input prices and rise in other operating expenditure. This, we believe, will impact operating margins by 215 bps to 16.1% in Q2FY12. Even though topline and operating profits will register positive growth rates, profitability will come under pressure due to the unabated hike in key policy rates by the RBI. Hence, we estimate an 11.4% YoY decline in net profit for our coverage universe for Q2FY12. This performance would be slightly better as PAT, excluding oil & gas, would decline 6.5% YoY. What will be highly crucial to determine during the quarter would be whether the earnings downgrade cycle gets intensified as we face significant local and macro headwinds? As of now, we expect the broader market earnings to grow at 11% CAGR over FY11-FY13E.

Sectoral leaders and sectoral laggards
We expect cement (volume and realisation based growth), FMCG (relatively resilient demand coupled with price led growth) and IT (sequential rise in volume growth) to put a robust show (positive revenues and net income growth on a YoY basis). On the other hand, sectors like automobile, capital goods/infrastructure, metals and telecom will report revenue growth but the same will not reflect on their profitability as high capex, high working capital, high interest rates and one-offs will spoil the show. Even in the banking and financials space, we expect a mixed performance within the sector as private banks (24% YoY PAT growth in Q2FY12E) are expected to post a better performance vis-a-vis their PSU peers ( ~6% YoY decline in PAT) as pressure on asset quality and subsequent provisioning would be high in the case of latter.