Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,099.7513.05
Stock Analysis, IPO, Mutual Funds, Bonds & More

Q4 results: Exporters to do well, rest still a drag

The tangled and sometimes difficult domestic equations can throw a spanner in the works of infra, cement, banking and oil & gas sectors.

, ET Bureau|
Updated: Apr 21, 2014, 08.22 AM IST
0Comments
Export-oriented sectors like textiles, leather and chemicals are also expected to do well, resulting in a more pronounced divergence in performance between domestic and export-oriented companies, in the fourth quarter.
Export-oriented sectors like textiles, leather and chemicals are also expected to do well, resulting in a more pronounced divergence in performance between domestic and export-oriented companies, in the fourth quarter.
It is natural for high-performing companies to show their hands first, and it is no different this result season. While Infosys and TCS have already declared results as per market expectations, a similar trend is expected in other IT stocks as well.

The depreciation in the rupee is the main driver for this. Though the US dollar weakened against the rupee in the previous quarter (from Rs 61.8 to Rs 59.89), it is still higher compared to the same period last year, and continues to help the IT sector.

Another reason is the improvement in demand from its key market, the US. However, the strengthening rupee may make things tougher for the sector in 2014-15. “The rupee may continue to rise after the election,” says Kishor P Ostwal, CMD, CNI Research.

SECTORS THAT WILL DO WELL

Pharma is another sector expected to report good results in 2014-15 despite the companies facing headwinds in terms of the appreciating rupee. This is because of increasing product launches in international markets, and the stabilisation in domestic market after the disturbances triggered by the drug price control order (DPCO).


Q4 results: Exporters to do well, rest still a drag


Other export-oriented sectors like textiles, leather and chemicals are also expected to do well, resulting in a more pronounced divergence in performance between domestic and export-oriented companies, in the fourth quarter. Besides the weak rupee and improvement in demand from the developed markets, these sectors are also benefitting from specific issues in China.



“The Chinese government hiking wages to stimulate domestic demand will increase the cost production,” says Vinay Khattar, head of research, Edel Invest Research.

Despite struggling with subdued passenger vehicle demand and degrowth in commercial vehicles in the domestic market, the auto sector is expected to do reasonably well. Besides exports, the main reasons for this are the stellar performance by the scooter segment and a significant contribution by global auto major, Tata Motors.

Telecom is another sector that may show a decent aggregate performance due to Bharti Airtel.

The expected domestic recovery should help both auto and telecom sectors to report good growth in 2014-15.

SECTORS NOT OUT OF THE WOODS

There is no significant improvement in the domestic economic activity and so most sectors will continue to be a drag. As is evident from the above table, most brokerages are expecting lower sales and adjusted net profit growth for their research universe in the fourth quarter due to this drag.

Infra

Though the sentiment has improved in the recent past, there has been no fundamental gain for the infra companies (power, construction, real estate). The capital goods segment is suffering because the power producers are delaying payment or deferring orders due to the financial stress. As expected, the flash result of BHEL has already shown the stress in the sector. Metals and mining is also expected to report weak numbers.

How will the sectors perform in 2014-15 with most stocks having rallied in the hope of a pro-growth government after the elections? The infrastructure growth will be muted if an unstable coalition comes to power, but it will not jump in case of a stable government either. “Even if a pro-growth government comes to power, a lot of work is to be done to kickstart growth,” says Khattar. So, profreal growth will be visible only in 2015-16.

Cement

Due to the fall in construction, both in real estate and infrastructure, the Q4 demand was muted for the cement sector. While all-India cement prices remained almost flat on a y-o-y basis, there was a jump in the northern region because of the shutdown of Binani Cement plant in Rajasthan, which produces 10% of the region’s total power.

While the company is expected to take a hit, companies like Shree Cement and JK Lakshmi Cement are expected to benefit. The sector’s performance in 2014-15 will depend on the new government and its stand.
 


Banking

While private banks like HDFC Bank are expected to report robust numbers, PSU banks will continue to be a drag on the sector due to weak credit demand from industries, rising operational costs and increasing NPA provision.

Hence, the earnings trend diversion between these two groups in the past few quarters is likely be repeated in Q4. There may be a slight improvement in the run rate of additional slippages or restructuring. “PSU banks are not yet out of the woods, but the new slippages or restructuring may be less in this quarter,” says Ostwal.

Oil & gas

Though major indices like the Sensex have kept the oil marketing companies (OMCs) out, this segment still constitute a major part of the economy and stock market. Since the government has shifted a major portion of the Q4 subsidy burden to 2014-15, OMCs will continue to report a huge fall in their net profits.

The situation is not that rosy for private sector upstream oil companies as well. While Cairn India is expected to report a decent net profit growth, Reliance is still caught in the gas pricing and falling gas output imbroglio and, therefore, is expected to show only flat numbers. The offshore companies like Global Offshore and Aban Offshore, however, are expected to do well due to the jump in rates.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service