Earnings season holds out sliver of hope

Nov 26 2012, 09:44 IST
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SummaryIndia Inc Q2 results brought in some much-needed cheer for investors despite challenges.

level led by better-than-expected cost control. Mobile revenue, though, was below estimates due to pressure on traffic growth.

GUIDANCE

Keeping with the trend, the current results season does leave us in a better position in terms of the outlook for the coming quarters, both in terms of financial outlook and stock performance. In the auto sector, Maruti Suzuki has indicated better demand due to festive season and new Alto launch, with the order book for diesel vehicles remaining strong. Tata Motors guided better second half 2012-13 while L&T has maintained its guidance in its second quarter guidance. Among consumer goods players, HUL indicated a moderation in discretionary categories volume growth. Pricing component to continue to fade while ad-spends will be kept competitive to deal with any rise in competitive intensity on the back of input cost deflation. Among tech firms, Infosys retained its 2012-13 US Dollar revenue growth guidance of 5 per cent. Wipro guided for 1.2 per cent-3.2 per cent quarter-on-quarter US$ revenue growth in the second quarter of 2012-13. TCS and Cognizant expect furloughs (temporary unpaid leave) to impact growth in the third quarter of the fiscal. Among telecom firms, Bharti’s capex guidance unchanged at $3-3.2 billion (as against 2011-12 capex of $2.8b).

OUTLOOK

So at a time when the economy is certainly slowing and the pressure on the fisc is mounting, for investor at large, the latest quarterly results come augur hope. In the final analysis, going by the latest quarter’s results, small-cap companies seem to have fared much better, mainly in terms of being able to rein in material costs as well as maintaining better margins. Some of the larger-sized companies too managed to turn the corner by sourcing materials cheaper and managing inventories better. Mid-caps have struggled to fend-off margin pressure.

SECTORAL PICKS

FMCG (Fast-moving consumer goods), cement, IT services and hotels have largely done well during the quarter. Troubled sectors such as infrastructure, real-estate and consumer durables too have shown a mild revival. Beyond these sectors, leaving aside some strong individual performances, subdued topline numbers do carry a warning note. For investors, though, it might be prudent to keep in mind the fact that stronger realisations for cement and agricultural commodities – sugar and tea, decline in raw material prices for textiles, healthy revenue growth for media and pharmaceutical sectors has resulted in the improvement in profitability for small-cap companies in these sectors. From a sectoral

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