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AN investment can be considered in the stock of Century Textiles with a one-to-two year perspective as its profitability and scale of earnings could improve.

Its revenues and earnings are dependent on the cement and textiles business. These two sectors are likely to figure prominently in institutional investor preferences due to an emerging favourable industry outlook and this factor could lead to a greater degree of interest in the Century Textiles stock. The cement business has turned in a strong performance in FY 05 on the back of higher volumes and a firm undertone in cement prices.

The company has a presence in the northern and eastern markets where a finer balance between demand and supply has started to emerge; this is likely to lead to a higher degree of stability in cement prices at higher levels than in the past.

Though rising input costs are a concern and could moderate margin expansion, cement business is likely to boost earnings growth over the next few quarters. The company is one of the larger players in the textiles business with a high degree of integration and a growing presence in ready-made garments. Its export prospects are likely to improve as the quota regime has now been phased out.

As it could emerge as a choice supplier of fabric, revenue growth is also likely to be healthy though earnings from this business may get a fillip only over a one-to-two year period. Its other businesses, which have been a drag on profitability may become more marginal to earnings though the outlook for paper has improved.

EQUITY prices are expected to exhibit a high degree of volatility and could have a downward bias in the near-term as the scale of FII flows has dropped to lower levels as compared to the last quarter of 2003; they have been net sellers in most of the days over the past week or two.

Rising crude prices have yet again emerged as a point of concern, at least in the near-term for the markets. Investors will have to be more selective in their choice of stocks than in 2003 or 2004 to reap returns commensurate with equity risks.

We remain bullish on the growth prospects for the Indian economy. But for now, a decision to buy specific stocks could be executed in small lots to take advantage of the weakness linked to broad market trends.

In large-cap stocks, profit-booking on a part of your holdings may be considered in deep-in-the-money positions; re-entry at lower levels can be considered.

S. Vaidya Nathan

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