Cyclical sectors are expected to drive March 2020 quarter earnings growth

 Bank results are especially eagerly awaited in this quarter. The Supreme Court has lifted its stay order, which means that banks can report NPAs realistically

Investors are an optimistic lot like March 2020 quarter (Q4FY21) results in season gets underway. The economy is showing signs of recovery. There was good earnings growth in Q3FY21, though revenue growth was marginal. There will be a low base effect in Q4, as the last 10 days of March 2020 (usually among the busiest because of the fiscal ending) were hit by the lockdown. So, there should be enhanced year-on-year (YoY) revenue and earnings growth.

High-frequency data is giving mixed signals. But overall, these indicate recovery continues. GST collection at Rs 1.23 trillion was up for March 2021; manufacturing and Services PMI both indicate month-on-month (MoM) expansion; exports and imports have both grown indicating more activity. The global economy is also showing signs of recovery, with IMF projections of 5.5 percent growth for 2021.

On the downside, core sector growth for February 2021 disappointed at -4.6 percent, and vehicle sales, especially two-wheeler sales, stalled in March. Crude and gas prices are up, which means higher inflation expectations.

Oil refining and marketing firms will see positive inventory revaluation, given global prices rose 20 percent during the Jan-Mar quarter. But gross refining margins will be impacted negatively. Metals prices are up, for iron and steel and non-ferrous metals. This is good for the metals industry, though it will raise input costs downstream.

The Reserve Bank of India (RBI) held interest rates steady in its April MPC. It projected gross domestic product (GDP) growth for 2021-22 will be about 10.5 percent. The central bank has also announced a QE (quantitative easing) program, which will ensure domestic liquidity and help keep the rupee down. Treasury yields have spiked in the US (and risen a bit for rupee treasuries). This could be a reason for FPIs to turn cautious. FPIs have been moderate sellers in April.