Analysts Predict Declining First-Half Profit Growth
telecom stocks could soften the blow, analysts said yesterday.
We're looking at a profitability growth of an average 15-20 per cent in the first half of 1996/97 over the year ago, said Vinay Kamat, head of research at J M Share & Stock Brokers.
It's a sharp fall when you compare it to the previous year's growth, which was closer to 30 per cent, he said.
Analysts slashed earnings forecasts for top index stocks such as Reliance Industries, Tisco and SAIL after the government introduced a 12.9 per cent minimum alternate tax (MAT) which affects non-tax-paying firms in its 1996/97 Budget in July.
But some analysts said infrastructure problems and a recent liquidity crunch which were also likely to slow growth had not been factored into forecasts.
A lot of the lowering in forecasts was budget-related, said an analyst at a US investment bank. Economic issues like the tight money situation from last year and lots of logistical problems relating to transportation, fuel and power didn't show up in 1995/96.
They will bleed through in this year's results and start showing up in the first half, she added.
Earlier this week, processed foods maker Nestle India which is 51 per cent owned by Switzerland's Nestle SA said its first-half 1996 net profit was little changed at Rs 22.3 crore against Rs 22.2 crore a year ago.
Nestle said its profit was squeezed by rising interest costs and higher depreciation due to the capitalisation of projects.
A recent report by ICICI Securities and Finance (I-Sec) said the earnings growth of BSE's recast 30-stocks index was seen at 18 per cent in 1996/97, down from 31 per cent in 1995/96. The Bombay Stock Exchange revamped its benchmark index last month. I-Sec said earnings growth in the recast index would be higher than for the old index due to the lower weight given to commodities and cyclical stocks.
The forecast for the reconstituted index is slightly better than for the old because you have heavyweights like State Bank of India and MTNL holding the index up, said Bharat Iyer, strategist at UBS Securities.
Analysts said automobiles, banking, telecom and power utilities were the safest bets because they were least affected by MAT.
The market has discounted the budget proposals. However, t recently there have been a lot of expectations of MAT being revised and we could see a further downside of 5 per cent if nothing happens, Iyer said.