Jan. 9: It is not just the common man who has to bother about the rising prices and increasing interest rates — corporate India isn’t immune either. The first week of the New Year has been unkind to the equity markets, with a fall of almost 900 points. There is a good reason for the nervousness, as corporate India starts declaring financial results for the December quarter.
Several market watchers see the profit growth of India Inc slowing down in this period as costs rise. The past few weeks have seen an increase in raw material prices and interest rates, which will affect margins. These factors are also expected to impact earnings in the coming quarters.
Mumbai-based brokerage Edelweiss expects the 30 companies of the BSE Sensex to clock a growth of 18.5 per cent in net profit. This is lower than the profit growth seen in the previous quarter, the brokerage says.
While it sees an all round pressure on margins, the brokerage expects cement and telecom to be the worst performers, with profits down almost 30 per cent over the last year. Sectors expected to post a strong growth in earnings include metals and mining and consumer facing sectors such as auto.
Increasing commodity prices are a recurring theme. IIFL sees corporate earnings growing at 25 per cent during the quarter —which drops to 16 per cent if commodity sectors such as metals and oil and gas are excluded. Some other research houses have more optimistic estimates of increased earnings. Angel Broking for instance expects the Sensex companies to clock a 26 per cent growth in profits during the quarter, while Motilal Oswal (MOSL) sees the figure up 24 per cent.
However, these too come with caveats. For instance, if the petroleum sector —which includes heavyweights ONGC and Reliance, is excluded, earnings growth falls to just about 17 per cent. Given this scenario of rising costs and interest rates, MOSL feels that sticking to export oriented sectors such as technology and pharmaceuticals is a better strategy.
Angel Broking is more optimistic on the banking, capital goods and automobile sectors. Finally however, while the domestic picture may be clouded by inflation, absence of refo-rms and fluctuating IIP and global picture is affected by events in Europe, Indian markets would do well just on earnings growth, says Prabhudas Lilladher. Even if earnings keep on their current trajectory, Nifty could reach a level of 7,000 by the year end, it says.