Profits may hit double digits
Oct. 6: The equity markets, which touched another 33- month peak on Wednesday seem to be factoring in strong results for the just ended September quarter. Most of the brokerage houses expect the net profit of BSE Sensex companies to be in double-digits compared to the last year — though estimates vary from a low of 12 per cent to a high of 32 per cent. Sectors that are expected to well include metals and banking.
Telecom is expected to be amongst the laggards, given the intense competition and the pressure on margins that these firms are facing. Cement sector is also expected to see a drop in profits. This will be the third successive quarter of strong growth in sales and profits, says Motilal Oswal, a Mumbai-based brokerage house. Tata Motors and Tata Steel will be two big contributors to the overall growth in Sensex earnings, the brokerage feels — because of better peformance from their overseas subsidiaries.
IDFC-SSKI is the most optimistic amongst the various brokerages — it expects the profits 30 companies of the BSE Sensex to increase by 32 per cent.
Metals, banking, engineering and retail sectors will see the biggest increases in profits, the brokerage says. Interestingly, the broker expects the strong earnings momentum to sustain over the next two years. In spite of the growth however, companies are now facing pressure on profit margins. Morgan Stanley Research expects a sharp increase in depreciation and a drop in net financial income for the companies it tracks, which should result in lower margins.
IIFL also expects operating profit margins to be lower by about 1.8 per cent compared to the last year. Firms in the agri-commodities, cement and realty sectors are likely to see the biggest hit in margins, the broker says. However, the good tidings are not expected for all companies.
Telecom and cement firms are expected to witness sharp dips in profits versus the last year. Telecom margins have been hit because of the intense competition while in case of cement, growth has slowed down and prices have fallen — leading to lower profits.
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