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Raghuvir Srinivasan

The results of several high-profile companies from different sectors are due in the next few weeks. With rising input costs and taxation woes, disappointing performances may put the good ones in the shade. Until the monsoon breaks, these results could well set the tone for the market in the near term.

THE 2004-05 results season has begun on a turbulent note with the first set of report-cards from biggies Infosys and Tata Consultancy Services spooking the market. For different reasons, the results announcements sent a shiver through the market, causing a sharp fall in the indices (see accompanying story).

A number of high-profile companies from different industries are due to declare their results in the next few weeks. The nature of these results could well set the tone for the market in the near term until the monsoon breaks. So, what could be in store? Good news or bad?

Quite a few companies would surely come up with impressive performances. But they could well be overshadowed by those coming up with disappointing performances, especially in the fourth quarter.

A combination of factors, such as the implementation of value added tax (VAT); government policy, especially on the energy sector; implementation of superior norms for emission control and rising commodity prices leading to a pressure on margins, could well lead to a spate of disappointing numbers from some high-profile companies.

There could be good numbers coming in from companies in the auto sector such as Tata Motors, Maruti Udyog, Mahindra & Mahindra, and Ashok Leyland as also from commodity producers such as Tata Steel, SAIL, Hindalco, Nalco, ACC, Grasim Industries, Indian Petrochemicals Corporation (IPCL) and, of course, Reliance Industries.

The auto sector is doing rather well, though the growth was slower in the fourth quarter, especially for passenger car manufacturers. Tata Motors, however, maintained impressive sales growth even during this period and it is only logical to expect the company to come out with a good financial performance.

Though sales did slow down for Maruti in the fourth quarter, the company could still declare impressive results riding on its performance in the first three quarters. The only factor that could have depressed the margins of auto companies was the rising cost of inputs, especially steel.

The same factor will, however, benefit steel producers such as Tata Steel and SAIL, who are sure to gain from the high prices that prevailed through much of the last fiscal.

The impressive performance of Jindal Stainless, which declared its results last week, points to buoyant numbers from the other steel producers.

Hindalco, Nalco, ACC and Grasim are likely beneficiaries of the positive trends in aluminium and cement prices. However, the trend may not be uniform across cement companies, as those such as UltraTech and some South-based producers are likely to be laggards.

Petrochemical producers have had one of their best years in recent times with the rising prices of polymers.

Of course, their performance could be tempered a bit by the corresponding rise in the prices of feedstock such as naphtha, which is a main raw material. Expect a good performance from IPCL and Reliance Industries.

Where is the disappointment?

The oil refining and marketing companies, such as Indian Oil, Bharat Petroleum, Hindustan Petroleum and IBP, are likely to announce a sharp fall in earnings in the fourth quarter.

Their inability to mark retail prices of petrol and diesel to global levels and the increasing subsidy burden from cooking gas and kerosene could well depress their profits in the fourth quarter.

Their only solace is that the refining margins have been strong in the same period and could compensate, in a minor way though, for the losses on the marketing front. Even so, a pure marketing player such as IBP is likely to have lost heavily in the fourth quarter.

However, pure refiners such as Chennai Petroleum and Kochi Refineries may buck this disappointing trend as they do not bear the burden of marketing losses. They could well declare a growth in earnings in the fourth quarter on strong refining margins.

Pharmaceutical companies have been done in by VAT; sales of most producers slowed down in the January-March quarter as dealers refused to stock medicines in anticipation of VAT introduction.

The first indication of this came from the performance of Wockhardt, which declared a drop in net profit, albeit marginal.

After a couple of good years, banks could be heading for lower earnings growth as treasury profits drop following a fall in bond prices.

The fourth quarter earnings of Corporation Bank fell 10 per cent following a fall in treasury profits and higher provisioning for bad loans.

Rising steel prices are likely to have impacted the performance of user industries such as auto components and capital goods.

The predicament of auto component manufacturers is that while their input costs increase, vehicle manufacturers do not immediately grant them higher prices for the components.

This earnings season could, thus, keep the market subdued as disappointing performances put in shade the encouraging ones.

The market may now start looking to the monsoon's arrival to gather positive momentum. But that is another story altogether, isn't it?

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