Half Year Results

Expectations are pretty low and most analysts expect poor results in general. Most manufacturing sectors have seen sluggish demand stunt growth rates even as the cost of key inputs like coal and power have been rising.

A glut in key sectors like cement and steel have ensured that the increase in costs cannot be passed on to end-users. Thus along with sales growth margins too will be hit.

The sales data for the automobiles sector, between April-August, provides a picture of the gloomy scenario. Medium, heavy and commercial vehicle sales dropped 18 per cent over the corresponding period last year.

Car sales saw a steep decline in growth to 7.68 per cent from 23.72 per cent in the previous half. This has had an adverse impact on the dependent sectors like auto components and capital goods.

Total saleable steel production between April-August fell 1.4 per cent against a growth of 6.8 per cent recorded in the same period last year. The growth rate of cement despatches too declined to 3.4 per cent in April-August from 12.8 per cent. The scene is no better for consumer durables, electrical products or capital goods.

In total, except for sectors like pharmaceuticals, fast-moving consumer goods and software, which are either relatively recession free or derive a bulk of their income from exports, corporate performance in the first half is going to be dismal. The effect on their share prices is expected to be minimal since this has been factored.

The stocks to watch out for are those that have managed to stem the fall in profitability despite a dip in sales growth. This could have been achieved by adopting measures like pruning of costs and increasing productivity.

These companies also stand to gain the most if the expected industrial recovery in the second half actually materialises. Such companies will provide investment opportunities which can yield above average returns in the medium term.