India sales momentum slumps to 15.3%

Consequently, the June 2012 quarter sales is expected to show a 6.2% decline.

According to Nomura, India's earnings revision momentum turned decidedly negative in August 2011, coinciding with IIP growth moving from an average of 7-8% to closer to the 1-3% range. Post crisis through Dec 2011, none of the quarters saw y-y sales growth fall below 22%, with most quarters seeing growth in excess of 25%. For the March 2012 quarter, growth slowed to 18.8% y-y and we expect it to slow further to 15.3% y-y for the June 2012 quarter.

Here's more from Nomura:

In sequential terms, we expect a June 2012 quarter sales decline of 6.2%, vs the June quarter’s previous 3-year average decline of 2.9% q-q. We see the following implications:

1. While the broader economic weakness is well known, actual sales slowdown can bode ill for margins as companies cannot cut costs as quickly as sales decelerate. Further, with high interest rates, financial leverage can also take its toll on earnings. The risks in a slowing sales environment are stacked to the downside for earnings.

2. Even though the base effects for earnings are favourable for 2H, we think that the sequential deceleration in sales points to the market not benefitting from those comparisons meaningfully.

3. Profit growth (excluding banks and oil & gas PSUs) has been negative for the past two quarters. The drop of 9.7% y-y we expect for the June 2012 quarter is still the highest in the past few quarters. The market earnings growth is largely being held up by banks, consumers and rupee beneficiaries such as pharma and technology. With slowdown deepening both globally and domestically, it is difficult to believe that these sectors will continue to provide an overall earnings cushion.