Wed, Jul 9 12:50 AM
The markets may have looked glum in recent times, but the bears may not be taking over just yet, with a quarterly preview released by Motilal Oswal Securities Ltd (MOSL) stating that the earnings estimates for Sensex, the Bombay Stock Exchange's Sensitive Index of 30 stocks, continues to be positive. "Despite all the concerns, the compilation of earnings for Sensex stocks does not show any evidence of slowdown," the report said.
However, it points out that 40 per cent of these earnings would come from the big three-Reliance Industries, ONGC and Tata Steel. According to the preview, Information Technology (IT) and telecom firms like Bharti and Reliance Communication may report losses on their forex hedging positions with 13 per cent depreciation in the rupee in the quarter.
"The topline growth for the first quarter is likely to be inflated and the margins flat. We still have not seen major pressure on margins and is likely to be seen in the second quarter," Rajat Rajgarhia, director, research MOSL said.
In the first quarter, MOSL estimates a 30 per cent growth in sales for the Sensex basket, 22 per cent growth in Earnings before interest, depreciation and taxes (EBIDTA) of 22 per cent and 15 per cent in net profit growth. For the financial year 2008-09 the securities house has predicted an Earnings Per Share (EPS) for the Sensex at Rs 1,011, a growth of 20.5 per cent.
Crude oil prices, any change in the government subsidy structure or taxation could impact earnings. "A rising import bill could worsen the current account deficit and put pressure on the rupee.
Additional subsidy burden on certain companies by government and higher petro-product prices to fuel inflation are the three key risks from high oil prices this year," the report says. The study shows that the interest rate as a component of profits has been coming down for large cap companies over years, and hence interest rates may not be a major concern for them.
"It would be a far more challenging time for mid caps, as they may not be able to reduce costs and also borrow easily," said Rajgarhia who adviced that it was best to stay invested in stocks with high earnings visibility and valuable franchise.
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