The September quarter is expected to deliver bumper earnings growth: 20% or more, according to consensus. Even the previous quarter's earnings surprised Dalal Street positively, but the earnings surprise has not translated into gains in the benchmark indices.
In fact, over the past two quarters, the headline Nifty 50 has remained absolutely flat. One of the key triggers behind positive earnings growth not leading to gains in the markets is the contraction in margins.
The key trigger? Inflation. One of the key factors driving up inflation is higher crude prices, which have hovered between $90 and $110/bbl since the start of the tensions between the US and Iran.
"Inflation has a very high correlation with global crude prices, which means there is a generalised increase in raw-material costs because of rising crude prices," explained Dhananjay Sinha of Systematix Institutional Equities.
According to Sinha's analysis of earnings from the June quarter, companies experienced average raw material cost inflation of roughly 40% YoY, much higher than the expectations of 25%.