X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
1QFY07: A rear mirror gaze... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 7, 2006

    1QFY07: A rear mirror gaze...

    10 trading days and a point-to-point gain of 781 points!! To put it more simply, an average gain of 78 points per day. This is how the BSE-Sensex, the benchmark Indian index, has moved over the past two weeks, and all the talk of how Indian markets have entered into 'no man's land' and that valuations have become steep seems to have come to a grinding halt. With companies coming out with a stellar set of numbers for 1QFY07 and projecting similar outcomes for 2QFY07, it looks like the steam has not yet run out for them and India Inc is likely to continue with its robust performance.

    The fact that the markets witnessed a meltdown during the month of May and valuations have come back to reasonable levels also helped. Little wonder then, that investors have come back and given the market an 800-point salute - well, almost. Amidst this euphoria, let us have a look at which sectors were the stars during 1QFY07 and which ones lagged. The companies used here are the ones from the Equitymaster universe.

    The leaders - Commodities lead the pack: Sitting pretty atop the leaders' pack is the cement sector, where revenues have grown by a strong 36% YoY and net profits courtesy the operating leverage have grown by a staggering 186% YoY. With demand growth outpacing capacity addition, cement companies are having a really good time, as rising prices are directly adding to the companies' bottomlines and enabling them to register strong profit numbers. Going forward, while the demand is expected to remain strong, given the infrastructure boom in the country, new capacities coming on stream might cool down prices, thus leading to a drop in profitability. On the valuations front, we believe that current prices already reflect the medium term prospects but there are still some quality stocks in the sector that could give good long-term returns.

    There isn't much to choose from the other top-performing sectors, as all of them - steel, software, telecom and engineering - have logged in a net profit growth in the region of 46% to 50% on a YoY basis. Software stocks, however, have clocked the highest revenue growth of 46% YoY. With operating leverage amongst the lowest of all the sectors, growth in topline more or less gets reflected in the bottomline, excluding the other income component, and hence these companies will have to put up a strong performance on the topline front if net profits have to grow at a fair clip. That said, with most of the companies having strong order books, software stocks are likely to remain on the investor's radar for quite some time to come.

    The laggards - input prices mar profit growth: If one has a look at the last ranked sectors in terms of profit growth during 1QFY07, then a trend clearly emerges. Most of these sectors are the ones where raw material prices account for a chunk of total input costs. Indeed, with prices of commodities like metals and crude oil remaining at high levels or even breaching the previous highs, sectors like auto and energy have experienced a margin squeeze and have seen their bottomline rise marginally or even decline vis-a-vis 1QFY06. The worst-hit has been the energy sector, where government interference has led to bleeding of most of the public sector companies, as they have not been able to pass on the input price hike to the end-consumers.

    Having touched upon the performance of the best performing and the worst performing sectors during 1QFY07, one must be curious to know where we go from here. While we admit that it is rather difficult to predict what course the future is going to take, zeroing in on companies that have strong track records is not that difficult a task. Focus on companies that have put in consistent performances year after year and then check if the valuation levels are within reasonable limits. Hold on to these principles tight and revenue growth or no revenue growth, margin pressure or no margin pressure, chances are you will be rewarded with adequate returns on your investment.

     

     

    Equitymaster requests your view! Post a comment on "1QFY07: A rear mirror gaze...". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Were You Lured By Mr Market's Bait? (The 5 Minute Wrapup)

    Aug 23, 2017

    Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?

    Deep State First (Vivek Kaul's Diary)

    Aug 23, 2017

    Nowhere was the darkness deeper than in the nation's capital. There, no light shone. No flicker of awareness...observation...learning...or reflection appeared.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 23, 2017 03:36 PM

    MARKET STATS