India Inc. has declared mixed results for the first quarter '08-09. The current uptrend in the markets has been largely fuelled by two factors: i) The perceived stability of the govt., and the positive expectation of economic reform process being revived, ii) Softening of global crude oil prices. Crude oil is currently trading at the lower end of the technical band $117-147/ barrel. Both these factors may be deceiving in the medium term: the govt. may not be able to push through the reform process freely, and the crude oil may be in for a technical bounce back towards the $147 mark. In this scenario the market may be driven by the results declared by the companies.
Let's analyse the 1st quarter results to find out how India Inc. has fared (YOY growth figures):
- Net sales are up 25% (sharply up due to inflationary effect, high input costs)
- Other income is up 12% ( sharply down from previous quarters, due to Rupee depreciation and MTM losses)
- Total expenses are up 27%
- Operating profit is up 15% ( A decelaration compared to previous quarters)
- Interst cost has gone up 62% (erosion in profitability of high debt companies is maximum)
- Net profit has grown 10% ( A sharp decline over previous quarters)
If we analyse these results it paints a gloomy picture. But the situation is likely to improve from 3rd quarter onwards, when inflation will start falling, interest rates will peak out, and the loss from MTM losses will be drastically cut. For investors it will be prudent to book profits in the range BSE 16000-16500 and Nifty 4800-5000, because the market is likely to react negatively once the positve impact of the other two factors mentioned above is realised by the market. A good buying opportunity will emerge in the sensex range of 12500-13500. If the sensex is able to make a higher bottom, signifiacntly above 12500 in the month of September-October 2008, it will signal a reversal of the bear market trend.
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