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Ride On the Tide of Commodity and Digital India

The commodity prices will break free from the down cycle in another 18 to 24 months and so this could be the ripe time to invest in the businesses as well as the projects involved in the digital India.  The Indian economy will be driven by the overall growth in the country via the investments in the digital networks for the high speed data and so also the investor friendly policies for natural resources. There is ample scope of a winning spree in the commodity in the long term, both the zinc in China and elsewhere and the copper prices are getting better and so also the prices of the oil has recovered  to $ 65.

The uptick in China and elsewhere in western economies would start looking up for the commodities by the start of the next financial year.  There is bound to be high demand for the cables and the optic fibers. The availability and the optimum utilization of the natural resources is the key factor in getting the economy to spiral up. Although the worst part we have pulled out barring this quarter which is staring to kick dust of another dismal financial performances and the rebound is not very far away and it must be just around the next corner.

The nifty-50 may dip marginally but the headwinds related to the commodity as well as the currency would be marginally lesser. But still as compared to the last year things are perking up. Although there is some lackluster growth of the revenue and the profitability of the wide spectrum of the companies continues to grow all thanks to the reduced input of the prices and also on the account of the lower interest outgo. Elsewhere in certain sectors which have started to realize higher operating leverage as capacity utilization and so also the volume growth pickup. These are some of the initial signs of a turn around, there may be this quarter of the weak earning back to back but the economy has started moving as such the industrial activity is picking up gradually more over the investment activity is gaining further pace as the government is doing expenditure on the road development projects and so also the inflation is under the control and expectations of the RBI.

So the corporate India is going to report a telling growth by the third quarter of the current fiscal year, so the first half will tend to reflect upon the financial performances with indications of a pickup and the second half the indicators will start reflecting in terms of the numbers financially speaking. The companies dealing in the IT Sector, Pharma and the oil sector will be giving the major thrust. While certain sectors like capital goods, FMCG, power, banking, cement and construction will be at a snail’s pace   for this quarter.

The Sector wise Pulse: -

 1) Banking: - As the loan growth is not picking up which is likely to impact the net interest income for the banks so also the flat bond yields would not generate healthy treasury earnings. Even most of the public sector banks are headed to report a fall in the net profits owing to the high provisioning for the stressed out assets and on the other hand the profit growth of the private sector may slow down to an extent.

2) Oil and Gas: - The oil majors will gain about 12% moreover a drop in the subsidy burden will support profits of the likes of IOC, HPCL and BPCL Oil India, ONGC and GAIL.  

3) The Automobile: - This sector is on the track to report a profit growth on an average of say 7% barring the Tata Motors because its performance never reflects the domestic picture as almost 95% of the sales of the Tata Motors is contributed by the overseas markets. HMV is growing to the tune of 20% owing to the replacement demand. The sales of automobiles, two wheelers as well as the tractor are expected to pick up in this quarter. Expect some pleasant surprises to pop up from the stable of Maruti.

4) Power: - As the industrial demand for the electricity has come down impacting the revenue of major power utilities revenues, so also the distribution companies involved opted for more of the hydro power due to the better monsoon, and so the operating margins will glow as the costs of the raw materials are low.

5) Capital Goods: -The industrial stocks are expected to report positive earnings mostly due to the low base effects and cost controls. As of now there has not been any major change in the trajectory of the order flow from the steel as well as the cement which are the major generator of the business. Although there has been some movement and signs of life reflecting in the orders from the railways and transmission and distribution utilities and so also the power grid corporation.

6) Pharma: - So far no major new drug launch seen even till horizon so the revenue growth will hardly catapult beyond double digit for most firms which are dependent on the domestic sales.

7) FMCG:- The volumes growth will be a key factor to watch out for in the case of the FMCG sector as the sales figures are likely to take a dip on account of the poor demand amongst the consumer.

8) Metals: - The poor demand and poorer realization would definitely impact adversely the earnings of the metals and so also the mining companies. The earnings of the Hindalco will be hurt as there is a drop of 10% in the aluminum and weak demand of steel will Tata Steel and NMDC bruised. Although the sales volume of the coal India is glossy but still but till Coal India will report a flat figure owing to lower realization from the e-auction.

9) Cement: - There will hardly be any improvements in the revenues of cement due to the seasonal nature of its business. The net profit is expected to grow by 8% and the revenue growth will be close to 5%. The cut throat competition amongst the cement companies only helps in keeping the prices floored.

10) IT Sector:- The June has been as usual, traditionally at its best for the IT Sector and to add to it even the cross currency movements have by far been very stable all through the last quarter always supports the top line growth as well as the operating margins too. The TCS and HCL are on the go whereas on the other hand the Tech Mahindra is headed to register marginal drop in the revenue generation.