Investors are eagerly awaiting the 2007 March quarter results, which are expected this month. While it is true that the BSE Sensex has risen, volumes have been disappointing — an indication of the market uncertainty.

But if the past is any guide, investors need not worry too much. During April, July and October 2006 and January 2007, the months when quarterly results were declared, the Sensex rose by 6.8 per cent, 1.6 per cent, 6.2 per cent and 3.3 per cent, respectively.

Analysts believe that FY07’s fourth quarter results will be similarly positive. Overall revenue growth is expected to be between 20 and 25 per cent, while profits should grow around 35 per cent. “All the sectors will see expected growth, with power, capital goods and infrastructure sectors doing well,” says Avinash Gorakshakar, head (equity research), Emkay Shares in Mumbai. In the past five months, the Reserve Bank of India (RBI) raised the CRR (cash reserve ratio) by 150 basis points to 6.5 per cent. The repo rate also increased to 7.75 per cent. As a result, in the past three months, banks have hiked lending rates by 125-200 basis points. “The increase in CRR, the repo rate, the subsequent hike in interest rates, and the ceiling on cement prices will not affect the current quarter,” says Gorashakar.

That is why most analysts are more eager about what will happen in the first quarter of FY2007-08. In the next quarter, the auto and finance sectors are likely to be hit, as loans have become costlier. A ban on sugar exports will lead to a loss of valuable export incomes. Even the domestic cement sector will be affected as the government has abolished the 16 per cent import duty and 4 per cent special additional customs duty on Portland-type cement. Also, the appreciation of the rupee against the dollar will have a negative effect on export-oriented sectors, especially IT.

The numbers (see “Tale of the ticker tape”) indicate how different sized companies fared in FY07. Year-on-year (YoY) growth, in the past three quarters, has been impressive across all the categories. Bottom lines have also grown considerably this third quarter when compared to the same period last year.

Although the Q4 FY07 results are expected to be good, the market itself has not been doing well. While FY07 was the fourth consecutive year with positive returns, the Indian market was de-rated by investors. The (Nifty’s) CNX midcap index, for instance, delivered a mere 1 per cent return in the 12 months ending March 2007. Investments from domestic mutual funds reduced by 41 per cent — from $3.2 billion (Rs 14080 crore) in FY06 to $1.9 billion (Rs 836 crore) in FY07. Also, investments from foreign institutional investors in equities fell by 48 per cent YoY, from $10.9 billion (Rs. 47,960 crore) in secondary markets in FY06 to just $5.7 billion (Rs 25,080 crore) in FY07.

While the market is expected to stay positive through April, investors must be prepared for a roller coaster ride. According to industry experts the Q4 FY07 revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) for Sensex companies are expected to grow at 26 per cent and 30 per cent respectively, YoY. While impressive, this growth is lower by at least 6 per cent and 8 per cent respectively, when compared the previous quarter’s growth. Moreover, growth is expected to further slow down in Q1 FY08 due to the government’s restrictions on the sugar and cement industries, and the interest rate hike by the RBI and others in the banking sector. It is becoming increasingly apparent that the market’s best times are behind it.