The first quarter of financial year 2007-08 is nearing its end. And with the equity indices hovering around their all-time highs, the markets are awaiting India Inc’s first quarter numbers for any further cues. HT spoke to a section of market experts to get a feel of Street expectations on corporate performance in the current quarter.
While most analysts were upbeat on engineering and capital goods, a few remained apprehensive on the numbers of automobile and information technology companies.
Higher input costs and stiff competition in the lower and mid-segments has of late seen margins of automobile companies, especially those of two-wheelers, take a hit.
For instance, Bajaj Auto reported a lower-than-expected growth in fourth quarter profits last fiscal. Further, the May sales figures of Bajaj and TVS showed a decline by 13 per cent and 12 per cent respectively.
Despite the higher cost of funds and requirement in cash reserves, banks are expected to clock higher net interest margins.
“The cost of funds for banks had gone up during the current quarter. However, on the back of higher lending rates, banks, both in the public and private sectors, are expected to improve their net interest margins,” says A Balasubramanian, Chief Investment Officer of Birla Mutual Fund.
In order to fight a higher rate of inflation, the Reserve Bank of India had hiked the repo rate by 25 basis points and the CRR by 50 basis points towards the end of the fourth quarter of fiscal 2006-07. Several banks followed suit by increasing their lending rates to remain unaffected by the increased cost of funds.
Analysts expect the rupee appreciation to dent the profit margins of companies in the information technology business by 3-4 per cent. However, the extent of damage due to currency appreciation would depend on the onshore-offshore business composition of these companies and their respective hedging strategies.
However, a section of analysts feel that the impact could be already factored in the stock prices of these companies and better-than-expected results from biggies in the business could trigger a rally in their shares.
“Margins should be affected by the rupee factor, but we have not seen many downgrades in projected profits. The dollar may not depreciate much against the rupee from these levels and a better-than-expected result from Infosys and TCS could bring back the sentiment to the sector,” says Mahesh Bhagwat, Head of Equities of Mape Admisi Securities.
A recent report on the Indian steel industry says that the shortfall in supply of steel is likely to continue till financial year 2009.
With demand continuing to rule firm despite the higher prices for steel, companies in the sector are expected to carry forward the momentum to the current quarter also.
“Steel companies should post good profits in the current year. However, results of companies into production of non-ferrous metals could form a mixed bag due to the continuing volatility in prices,” said a BSE broker.
Oil and Gas
Companies in the sector have of late been enjoying higher operating margins, according to analysts. Further, a stronger rupee has helped them reduce pay-outs.
“Refining margins continue to be good for companies in the sector. Companies into exploration and production of oil are expected to generate good profits in the current quarter. The rise in rupee against the dollar has also helped the sector,” says Deepak Jasani, Head of Retail Research of HDFC Securities.
Engineering and Capital Goods
Companies in this sector had ended 2006-07 with bulky order books. Analysts say that the trend is ongoing, thus helping them notch up good numbers in the current quarter.
“Engineering and capital goods companies, due to their strong order book positions, are expected to do well in the current quarter. The speed of execution of contracts has also improved in the recent past,” said an analyst with a domestic brokerage.