Earnings: Watch out for media, consumer discretionary, pharma and banking stocks

In its Q2 earnings preview note, Nomura has come up with a list of sectors and companies to watch. It feels media, pharma and consumer will trump while banks, automobiles, mining and electrical equipment might suffer


As we enter the earnings season, Nomura Equity Research has come up with a list of sectors and its views of each sector, including which companies are likely to get affected. We had written in our earlier piece on their overall views on the market ( Now that Nomura expects this quarter to be subdued, we highlight some of the sectors that the brokerage thinks will be affected.

What investors can expect from each sector 
Automobile: The automobile sector can be used as a proxy for the overall economy. As more people become wealthier, more people will upgrade their lifestyle by getting a vehicle or upgrading to a better one. However, Nomura expects the quarter to be weak for the sector. It expects Exide and Amara Raja Batteries to do well.
Agri-inputs: Agri-inputs is the derived demand of the agriculture sector. When the monsoons are good, the sector will do well, and vice versa. But poor and erratic monsoon season this year have had quite a dampening effect on the sector. Companies like United Phosphorus and Jain Irrigation are likely to be affected.
Banks: Banks have done well of late, with share prices going up, due to ‘positive’ policy measures by the RBI in keeping rates steady while at same time cutting CRR. However, Nomura feels that the run-up has caught up with valuations and expects a correction. Apart from this, delinquencies are a concern as bad loans turn sour at increased rates.
Cement: The cement sector largely depends on the overall construction and infrastructure activities. With the monsoons over, manufacturing of cement is expected to pick up as projects resume. However, the diesel price hike is expected to put a dent on margins vis-a-vis transportation of cement from plant to customers, though margins downfall is expected to be cushioned by higher realisations.
Construction & infrastructure: Insurance companies can now invest more in infrastructure. Whether they will do that is another story altogether. Having said this, Nomura expects sluggishness to continue even though the government has initiated reforms measures.
Consumer: One of the few sectors expected to do well despite economic difficulties is the consumer discretionary segment. With inflation stabilised and trending downwards, consumers are buying more soaps, eating more pizzas and such. While the spending hasn’t increased dramatically or significantly to cause cheer, it is relatively better than nothing at all. Nomura expects Jubilant Foodworks and ITC to deliver strong results while Hindustan Unilever, Marico, Colgate-Palmolive will be watched. 
Electrical Equipment: Much of the demand for electrical equipment depends on the health of the power sector, which is clearly in crisis. Power plants have been affected due to environmental clearances and fuel availability in the form of coal. All this has taken a toll on electrical equipment manufacturers. Even though some states have guaranteed electrical manufacturers like BHEL towards discoms, long-term prospects remain to be seen.
Information Technology: The face of the Indian economy is going through a bumpy time. Global economic turmoil has taken a toll on exports. It is uncertain when developed countries will come out of the recession. The woes are further compounded by a strong rupee as Bernanke’s QE3 has printed dollars. Much of the sector is dependant on external factors which makes it look fundamentally unappealing for long-term investors. Nomura expects HCL Technologies and CTS to remain stable while bearish on Infosys and Wipro.
Metals & Mining: This sector has been in the news of late with the government ban on mining in the state of Goa while production is yet to resume in Karnataka—two of the big iron ore areas—on charges of irregularities and corruption. The raw material for steel is iron. Tata Steel is expected to be subdued according to the Nomura report.
Oil & Gas: India imports oil & gas and is thus exposed to the vagaries of global oil prices, and must pay in dollars, which means it is also affected by currency movements. Nomura expects (Brent) oil to be range-bound, meaning not fluctuating wildly, at around $110 per barrel.
Pharmaceuticals: It used to be the darling of the Indian corporate sector, and still is. With patents of branded products expiring, generics are expected to increase. However, a lot of litigation and compliance cost is involved, which eats into the margins and brand equity (i.e. reputation). However, Nomura expects the sector to deliver strong performances this quarter. It advises investors to watch out for Dr Reddy’s, Sun Pharma and Glenmark Pharma. 
Power: As mentioned earlier, the power sector is expected to remain subdued on account of policy inertia. According to Nomura, JSW Energy and Adani could surprise while preferring ‘defensives’ such as Power Grid Corporation, Coal India and NTPC. It must be kept in mind that Coal India has skimped on its PPA commitments to various power and power-related firms.
Property: This is one sector that is saddled with too much debt and too little cash flow. The only way to revive this is to hope that the economy does revive better than expected. However, this event seems unlikely. A flailing economy means people aren’t buying much and are deferring consumption in anticipation of benign times ahead. Nomura believes Prestige can do well while has put a ‘reduce’ call on DLF.
Telcos: Intensive competition has almost completely eroded the margins of telecom operators. While the consumer has largely benefited, the service levels have dropped alarmingly. Already beset with the 2G scams, there are questions about 3G and 4G auctions, which has put the sector in negative light. Nomura advises to keep a watch for Bharti Airtel and its performance in Africa. Recently, price tariffs have increased which may be good for the companies but not necessarily for consumers.
Media: Media has been in the limelight as there’s a lot of chatter on how digitization can reform and change the industry forever. It is been seen as a good move and more people will watch quality programming at higher prices, which also might boost ad-spend. It could be a game changer. Nomura expects sales of Zee to increase



Fake bail bond scam: CBI seeks six weeks' more time for probe

On several occasions, the CBI was pulled up by the High Court for its slow probe. In July this year, the Court had directed the central agency to complete its investigation within a month

Mumbai: The Central Bureau of Investigation (CBI) has informed the Bombay High Court that it would complete probe and file its charge sheet within six weeks in the fake bail bond scam at suburban Kurla railway station involving several personnel from the Railway Protection Force (RPF), reports PTI.
A division bench of Justices SA Bobde and RG Ketkar was hearing a public interest litigation (PIL) filed by social activist Samir Zaveri alleging that certain RPF personnel were releasing persons booked for trespassing and crossing railway tracks on fake cash bail bonds.
In August last year, the High Court had transferred investigation in the case to CBI following allegations of shoddy probe by the Government Railway Police (GRP).
CBI on several occasions was pulled up by the High Court for its slow probe. In July this year, the court had directed the central agency to complete its investigation within a month.
The agency, however, sought six weeks more time to complete its probe and file charge sheet. It informed the court that the agency has filed an application before a lower court seeking permission to conduct scientific tests on 12 RPF personnel.
In his PIL, Zaveri had alleged that a head constable acted as a magistrate and granted bail to the alleged offenders and the money collected was misappropriated by the RPF personnel themselves.
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FDI in Pension: Set up old peoples’ home for retirees!

While old peoples’ home is a shelter for many, it offers a viable investment opportunity for many others, especially the government

In the previous article—FDI in pension: What purpose can it serve? (please click here to read the article), we briefly covered the issue of the government’s move to open the pension sector for Foreign Direct Investments (FDI) as it has been felt that this move will bring in much-needed capital for its expansion. Infusion of capital, whether it is indigenous or imported, will be useful as long as clear plans are made for their need and utilization.
According to the statistical data available, the majority of the work force or a staggering 87% do not have pension cover at the moment. In most organizations, offer is made to the permanent employee to take up both provident fund and pension, but most choose provident fund simply because it is easily transferable to the new employer, in case of change of jobs.
Psychologically, however, as pension refers to the age-group of 55 years and above, to get the benefits, this puts off most people from diverting part of the very meagre savings, month after month, for this purpose.
Besides, within the inadequate income one gets, a lot of other priority areas of allocation, such as medical insurance, children’s education, marriage, and other essential monthly commitments take away bulk of the earnings, thus leaving very little room for pension, unless it becomes mandatory. Most people are satisfied with provident fund contribution.
In any case, the issue is how can the pension amounts be utilized in order to give an assured return to the payee?  At the moment, under the New Pension Scheme, anyone between the ages of 18 and 55 years can participate and advice the fund manager to utilize pension amount in various investment mixes. It could be in equity (maximum of 50%) or in debt in different forms.
Also, there are a number of avenues open under the NPS that may be suitable for one’s needs, but participating in NPS has been made mandatory for government employees.
All these are fine and do give protection to the pensioner in his or her golden years after retirement. But, then, can we now look at this issue of NPS in a different way?
Statistically, our ageing population, i.e. citizens over 60 years of age, as per the 1991 Census was 56.7 million people. As at 2011, this figure is projected to have reached 99.2 million and the estimated population of retirees by 2021 will be a staggering 140 million. So, we have to start thinking in terms of what would be required to make these people happy and satisfied in their golden years, and provide them with reasonable comfort after retirement?
One of the biggest problems we face today is the growing tendency for the disintegration of the joint family system that we have traditionally followed in our country. The present generation is already branching out to set up their independent families, leaving their ageing parents to fend for themselves, sometimes extending financial support and help and most of the times with no help at all, claiming that they have “too much responsibility” to take care of their own families!
In other words, we are slowly copying the western culture of packing off parents to old peoples’ homes which are now springing up all over the country. For many, it is a new area of investment and good return.
Frankly speaking, this change in attitude and behaviour has come about in the last ten years due to a great number of Indians settling abroad in USA, UK, Canada and Europe, and learning from their local experience!
Perhaps the time has come for the government to seriously consider diverting some 30% of the pension amount collected and establish and develop government-sponsored old peoples’ homes with supporting infrastructure and medical facilities in all the cities in the country. Each state must provide the land and basic facilities and the pension collected from that region should be used for setting up such operations.
In fact, the methodology to be used for the government-sponsored old peoples’ homes will have to be worked in detail but such a project must be included in the Twelfth Five Year Plan, by making a priority provision.
Such a move will enable great revival of economic activity in the country; building and construction industry will get a boost; steel and cement industries will have huge orders to tackle; other facilities to generate power, road construction, etc will get good support, besides employing thousands of people in these activities.
Each state will have several such townships because we have to take care of the retirees who are helping to building our country today, and they need our support tomorrow when they retire!
Please click here to read more articles by the same writer.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)




4 years ago

With changing times, there is need to factor in the needs of post-retirement life into working wages and saving habit of each individual. Even very rich people, when they become old or disabled, find that the secure shelter/roof which they believed was there over their heads, suddenly vanishes. Even when thousands of flats in the staff quarters of reputed companies and organisations remain empty, thanks to policy prescriptions forcing staff-reduction, retirees from these organisations find it difficult to aquire an accommodation or maintain the one they hire out or own.

nagesh kini

4 years ago

Mr. Ramdas is bang on when he writes of the bludgeoning 60+ population touching 140m in not too distant a future.
Seeing the bad conditions in which the presently government run Children, Juvenile, Girls and Womens are managed - molestation, harassment occupants forced to escape, will be wise for the state to take on the task of aging senior citizens?
The management of aging MLA/MPs occupying vast government accommodation is bad enough - most of them refusing to vacate the premises.
Mr. Ramdas' reference to breaking of old family values reminds me of these days girls asking the boys at the 'selection interview' whether they have "old furniture" or "excess baggage" at home - an euphemism for aged parents.If yes, it is an indication of a "no-no" then and there!

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