With substantial capacity addition looming and the economy slowing, this is not a sector that investors are fond of. Companies heavily reliant on imported coal, the price of which has almost doubled in the past year, will be severely affected, although all cement companies will be hurt by the rise in input and freight costs. An export ban and government action has kept prices in check. And, as Motilal Oswal points out, the industry’s capacity utilization is expected to decline on year-on-year basis for the first time in five years.
In this scenario, companies would differentiate themselves by changing their market mix, apart from managing costs. Companies that are the earliest to set up fresh capacity will reap the rewards of higher volumes.
Telecom
Subscriber additions have been strong, but the key factor is if tariff cuts have led to increased usage. Another would be losses on derivatives transactions, as this could offset a large part of the rise in operating profit.
Investors would also be keen on hearing management comments on capital expenditure plans. But considering that some large players have either concluded large merger and acquisition transactions or are in the midst of due diligence, investors are likely to be focused on management comments on the implications of these moves.
Information technology
Like Infosys Technologies Ltd’s results showed, wage hikes, visa costs and losses on forex hedges will more than offset gains from the depreciation of the rupee. Of course, for some companies such as Satyam Computer Services Ltd, wage hikes are granted later in the year, so there may not be as high an impact in the June quarter. But also note that Infosys had among the lowest forex hedges and still it saw much of the gains from the rupee depreciation being offset by losses on forex hedges. Investors would be keen to see the losses on this reported by Wipro Ltd and Tata Consultancy Services Ltd, both of which had hedges of more than $3 billion (Rs12,810 crore). HCL Technologies Ltd has said it will take a big hit.
The markets are likely to focus on management comments on demand from US clients and the situation with respect to pricing. Some of the numbers to look for are net employee additions and whether there’s a shift in work away from the US.
Retail
Although most retailers are likely to report strong year-on-year growth in revenues, margins are likely to be under pressure due to higher lease rentals and manpower costs. It needs to be seen what proportion of the growth is coming from stores that are open for at least a year (same stores), or if the growth is because of new stores. Stagnant same-store sales, caused by the increase in competition, can lead to lower return on investment and lower overall margins.
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