OMCs offer huge opportunities

Aunali Rupani, director, Arm Research, tells Rex Cano IT firms may report forex gains.

The BSE IT Index has been weak due to the strengthening of the rupee. What is your outlook for the sector?
Our overall view on the information technology (IT) sector remains neutral, though sharp currency appreciation remains a key concern in the near term. Frontline IT companies are better placed to weather the currency storm.

The effect of the appreciating rupee will not be felt much in the fourth quarter of the current financial year, since forward sales, to a certain extent, will take care of falling revenues. We do not rule out companies reporting sizeable forex gains in their hedge positions.

Some selling in frontline stocks may happen after the upcoming quarterly results, as the first quarter of FY11 will take a toll of 25-100 basis points (bps) on margins due to forex volatility.

It seems the government has put the Kirit Parekh report on the backburner. What is your opinion on the present state of oil marketing companies (OMCs)?
We believe that the present state of HPCL, BPCL and IOC should be attributed to lack of political will in tackling the issue of under-recoveries.

This will continue till OMCs reach a stage when it is not financially viable for them to absorb such under-recoveries.

Indian politicians are known to wake up and announce radical decisions only when things fall out of place and become unmanageable.

OMCs are available dirt cheap and offer tremendous investment opportunities, but only for investors who are willing to take the pain in the interim period.

What is your take on corporate earnings?
For FY11E, the economic growth is pegged at around 8.5 per cent. Corporate earnings are likely to grow 16-19 per cent. Key beneficiaries will be FMCG, infrastructure and pharma. Capital goods may spring a pleasant surprise.