Head of Research at Sharekhan, Sandeep Nanda expects a positive surprise from Infosys Technologies. He feels that it should be a good season for Infosys.
Nanda further states that most people are still fairly jittery about earnings, plus there is an absence of global data flow. He expects surprises in earnings from banks and Reliance.
Nanda expects negative growth for Tata Steel and on the non-ferrous side, he sees positive growth for aluminium companies.
Excerpts from CNBC-TV18's exclusive interview with Sandeep Nanda:
Infosys will be the big one, is there any reason to believe that they will surprise on the positive or on the negative side?
I think that most people including us are expecting a positive surprise from Infosys Technologies. People expect them to exceed their guidance and the rupee has weakened over the quarter, so it should be a good season for Infosys.
The only question mark would be that it is the first quarter in which we will see the range barrier options, which has been used for their forex cover. So we need to understand the impact of that.
Broadly what is your sense; will we come out of this earnings season by the end of July feeling good for the market or do you think it might be a set of earnings, which might peg sentiment back a bit?
We are looking at 19 per cent earnings growth for the quarter, so anything in excess of that would be a pleasant surprise. Most people are still fairly jittery about earnings and there is an absence of global data flow.
The real variance in earnings will be in banks where we have got a wide range of expectations. Reliance is another stock where there is a wide range of expectation, so these will hold the key. For most of the other sectors, consensus is pretty clear on which sectors are going to do well, such as auto, cement and capital goods. So the real surprises would be on banks and Reliance.
What do you expect from metals, especially the steel pack this time?
There is volume growth capacity led by Tisco, prices are still down, so we are looking at a slightly negative growth for Tata Steel. On the non-ferrous side, we are looking at positive growth for aluminium companies.
The key for Hindalco Industries would be how much they are able to ramp up production in the smelter, which faced a problem for the last couple of quarters. TRC (Treatment and Refining Charges) margins are also a bit down. But I think that the aluminium side should pull them through.
You said that the wildcard is the banking sector. Do you think it is possible for PSU banks to pull out any surprises because the way the bond markets have behaved, it would suggest that they might not come out with a stale set of earnings this quarter?
That is true. I think that is what a lot of people are expecting, particularly because one had a sharp rise in bond yields just towards the end of the quarter. The key thing is how much they are able to extract out of provisioning and if there is any amount of growth from other incomes. We know that there has been a fee-hike that you are able to get on government business, which could be a bit positive.
On the other hand, IPO floats are down, so that would also affect margins. In a sense, it is a bit of a tough call. Our sense is that there will be a slight negative growth for the banking sector as far as the Sensex goes.
For PSU banks, there will probably be a decline in net profit between 10-20 per cent. Provisions are a large chunk of expense for banks so if they are able to extract out anything there, then that would be a positive as well.
What are you expecting from the oil pack this time?
For Reliance Industries, we are seeing a strong refining margin; that should help them. Refining margin has seen an excess of $11 and there is a capacity growth too. So Reliance should do well. For ONGC, we are looking at about 10 per cent earnings growth in the quarter. For refining and marketing companies, the key is whether they will recognise oil bonds as an income or not. That is really going to be a swing for them.
What about HLL? What do you think Lever would report this quarter?
We are looking at a fairly strong topline growth for HLL at around 15 per cent, that has been led by both volume as well as periodic price hikes that they have taken across categories. Also, the shift towards higher margin personal product category continues. So we could see bottomline growth of around 23-24 per cent.
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