MyValueResearch

Q3 2009 results and India Inc.

The much-expected RBI rates cuts and the second economic stimulus package has come and gone. Despite the announcements, the markets remained range bound because of the expected Q3 results from the next week.

Well, results are not expected to be good in most of the sectors. But there are some sectors, which have shown a positive trend and would post a good performance, providing the balance.

Among all sectors, the worst performance is expected to come from the Auto sector, which has been facing the toughest time ever. With huge inventory pile-ups and lack of demand, also with the added burden of closure of plants to cut down inventory and some companies even resorting to cutting down production, naturally, the outlook is not too good.

The major worry for the sector is the slump in the sale of new vehicles. For instance, both Maruti and Hero Honda have reported 10% drop in their latest data for the month of December. Also, for the whole quarter, truck manufacturers have seen as much as 50% volume drop in some cases.

Same with Auto components sector and Tyre makers, both will show a downfall in the earnings.

Realty is another sector, which will show a poor result. There were fall in demand and lack of liquidity in the quarter. Big time realty companies might show a drop in performance but they will not go down as in the quarter they somehow managed to stay afloat by selling land or by stalling projects. But it is actually a question of survival for midcap and small cap segment.

Infrastructure companies might post a mixed bag of performance because companies whose projects got postponed would have a negative impact while companies which managed to carry on with the projects, though at a slower pace, would still manage to reflect a positive earnings. Moreover, with the fiscal and monetary stimulus package, this is one sector, which is expected to get benefited substantially in the coming months.

Banking is one sector, which is expected to have a good Q3. PSU banks are estimated to post a reasonably good performance. Private sector banks with lower forex exposures would also do better. But this is the sector, one need to keep a close watch because the sector is on a strong rebound with the interest rates coming down and with RBI injecting liquidity into the system. So this sector looks promising.

Cement would show disappointing earnings because of the slowdown in the realty, construction and infrastructure sector. Prices have come down and unless there is enough demand, there isn’t much hopes in the second half too.

Telecom is one sector that is poised to do very well. The sector has been growing exponentially, irrespective of the slowdown. Those who provide telecom services and those who provide equipments to the sector are expected to report in a robust performance, though companies with high MTM forex losses might pull down the earnings.

Then comes IT sector. With the US economy, the largest customer base of the Indian IT industries is also rolling under a slowdown; most of the IT companies are expected to show a fall in the performance.

Power is again one sector that will do well. There is no slowdown here as it is domestic driven sector. India has always been a power deficient country.

Another such sector is the Education sector. Companies providing education tools or developing education materials – be it software or books, are doing well. Education is not limited to books only. Not only the existing players expected to expand horizontally, many private and international players are also getting into the Indian education sector.

Textiles sector is again victims of slowdown, mainly those companies which are indulged in exports as their exports have literally halved for the moment. A sharp rise in bankruptcies among US retailers has affected the companies. Textile co. are cutting their production and manpower. US is the single largest export destination for Indian exporters accounting around 13% of total Indian exports. Since September, the average cut in production by the industry is as high as 15%.

Aviation, Hospitality, Tourism are all going to reflect the slowdown.

The Logistics sector too might get affected as shipments have dropped because of the falling exports. The falling crude oil and the cut in production by OPEC also means fall in business for this sector.

FMCG would post a good performance, as consumption growth is always steady than the investment growth. Also, companies are now selling their product more in rural India, where the impact of the slowdown is lower, so FMCG companies are expected to come out with flying colors.

So we can say that sectors like Auto, Realty, Cement, and Textile have really hit the bottom of the pits. Power, Banks, FMCG, Telecom might post good results. The first half would remain tough for India Inc but once the US and the other economy show signs of recovery, India too will propel this growth. The low crude prices, the cut on fuel rates and interest rates cut are all signs of not allowing the economy to slow down.

The glass should always be half full. If Q3 results are better-than-market-expectations, then, we will see major obstacle for the markets going away.