Mumbai: Indian companies are set to witness strong earnings in the March quarter on a year-on-year basis helped by low base effect, but high input costs could lead to pressure on margins, a senior official at Shinsei Asset Management (India) said on Tuesday.
N Sethuram Iyer, chief investment officer at Shinsei Asset Management, sees auto makers, IT, engineering and metals stocks reporting a strong set of numbers in the quarter ended March.
Shinsei Asset Managment is the mutual fund arm of Japan’s Shinsei Bank and manages around $4-4.5 million of equities.
Iyer, however, expects telecom companies to see subdued results and is underweight on the sector, which he said had shifted into a long-term play.
“It is definitely a sector one needs to look at very strongly on a long-term basis, but definitely not on a short term basis,” he said pointing to the price wars and higher capital expenditure due to the ongoing 3G auction.
Infosys Technologies, India’s No.2 software services exporter, forecast stronger-than-expected annual revenue growth of 16-18%, noting that a pick-up in global technology spending was improving demand for outsourcing.
However, a firming rupee on the back of rising foreign investment in India’s fast growing economy may keep earnings growth muted for outsourcers, and Infosys expects its profit margins to take a hit this year.
“There could be some marginal pressure on margins (of other IT companies), but that could be more than offset by the pretty strong performance on the topline,” said Iyer, whose equity funds portfolio holds Tata Consultancy Services and Wipro.
“The valuations have run up quite steeply. There is no great scope for re-rating as such,” he added.
Iyer said though a firm rupee and higher wages were negatives for the sector, one should maintain exposure to IT stocks.
Late last month, Shinsei Bank said it has reached an agreement to sell its entire stake in its Indian mutual fund unit to Daiwa Securities Group for an undisclosed amount.
Iyer expects the benchmark Sensex to rise to 20,500-21,000 points the end of fiscal year 2011, backed by strong earnings. “15-20% is my estimates of earnings growth this year (calendar year 2010).”
He did not expect monsoon to play spoilsport this year.
“We’ve not seen two consecutive monsoon failures of a very large scale. So, even if we have a normal monsoon, I guess it should be OK,” he said. “We are hoping and praying for monsoon.”