Search the Internet           Tips

IT firms H1 profit seen up, shares wary

India's top software companies are forecast to post earnings growth of over 100 per cent for the six months ending September 30 over the year-ago period, according to a Reuters survey of nine brokerages released on Friday.

But, analysts said investors should be wary about investing in the sector.

"The infotech sector will confirm the growth story," said Imran Contractor, head of research at Milan Mahendra Securities. "But, I am not bullish on the sector."

Consensus estimates for Infosys Technologies Ltd, Wipro Ltd and Satyam Computer Services Ltd showed net profit growing by 104.4 per cent.

Analysts said the strong earnings expectations were factored into the share prices, and global concerns about the technology sector would weigh on these stocks.

"The investor has to be very careful investing in information technology at this moment," Ashit Kothari, research head at ASK Raymond James Securities, said.

Software firms earn most of their income from exports and a weaker rupee, which depreciated by over 5 per cent against the dollar during the six months, has boosted their earnings, but there are concerns about pressure on operating margins.

Contractor said a slowdown in global spending on technology could affect growth rates of Indian firms over the longer term.

Pharmaceuticals promising

Pharmaceutical firms offered better potential for investors, because these shares were more likely to respond to improved earnings in a volatile market, analysts said.

"I am bullish on the pharmaceuticals sector," Contractor said. "In uncertain times the sector is a safe haven."

The survey showed profits of Dr Reddy's Laboratories rising 69.5 per cent and Glaxo India Ltd's, which will post nine-month results, rising 43.3 per cent.

Giridhar Iyengar, an analyst at ABN AMRO Asia Equities (India), said Dr Reddy's sharp rise in profits was partly due to write-offs in the year-ago period, though it was doing well.

"The results will drive the stock price up because all businesses are doing well apart from bulk drugs in the domestic market," he said.

FMCG mixed

The survey forecast mixed results for multinationals Hindustan Lever Ltd, a subsidiary of Unilever Plc and Nestle India Ltd, a unit of Nestle SA.

Detergents and consumer goods maker Hindustan Lever is estimated to see its earnings for the nine months to September rise 17.8 per cent, with its sales crawling at 6.1 per cent.

"With disposable incomes under pressure in Indian households ...I don't see much sales volume growth over the next one year," said Richard D'Souza, analyst at Sunidhi Consultancy Services.

"I see the stock falling to 170-rupee levels."

Hindustan Lever, which had the second heaviest weightage of 15.77 per cent in the benchmark Sensex on Thursday, was down Rs 0.25 at Rs 214.25 on Friday.

Profit of food and beverages firm Nestle is forecast to jump 54.2 per cent, helped by restructuring and low coffee prices, an important input.

Cement, auto sector in doldrums

Cement firms are forecast to show negative growth rates, with an average decline of around 34 per cent in earnings.

"Demand growth in first half should be in the range of 4-5 per cent compared to 20.2 per cent growth in the corresponding period last year," Namita Manel, investment analyst at ICICI Securities said.

The slowdown, attributed to floods that hit Andhra Pradesh and some eastern parts of India, put pressure on prices while costs grew, analysts said.

A hike in domestic fuel prices would further push costs up for the industry, which relies heavily on transportation.

Analysts expect the auto sector to reflect tough market conditions.

"Margins of most companies have been under pressure because of increased competition," Manish Karwa, equity analyst at Pranav Securities said.

India's largest truck maker Tata Engineering and Locomotive Company is expected to see its losses swell to Rs 1.5 billion for the first half against Rs 993.6 million in the year-ago period, the survey showed.

Sales are estimated to decline 7.6 per cent.

Back to top

(c) Copyright 2000 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Tell us what you think of this report