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Results ring warning bells
Fri, 29 Oct Pre-Open

We are half way through the earnings season and it has given reasons to cheer. Overall India Inc has doled out a commendable performance. However, there are a few reasons to worry.

On a year on year basis, revenues have grown for nearly all the sectors. Auto stocks have stolen the limelight on the back of very strong sales numbers that were driven by strong volumes. The companies were able to maintain high margins and this translated into a strong growth in profits as well. Other sectors that have done well were steel and banking & financials.

The surprise during the quarter was from the erstwhile laggard - the textile sector. The sector has been witnessing a turnaround in demand, which is clearly visible in their strong growth in sales as well as in their profits.

Stocks in the IT sector have given a mixed performance. While strong growth was seen in the IT majors TCS and Infosys, weak performance was delivered by their peers Wipro and HCL Technologies. Recovery in demand has driven growth in volumes for the IT companies during the quarter. However, cost increases for Wipro and HCL Technologies have dragged down their profit numbers.

All was not well for FMCG and Cement stocks either. While both sectors have witnessed a robust growth in revenues, higher costs have prevented this growth from transpiring in the bottom line. The FMCG sector was plagued by higher raw material costs as well as higher marketing spend. While companies have raised prices across their major product categories, the positive impact of this in the profits still remains to be seen. Cement companies have had another quarter of troubles owing to issues related to over supply as well as logistics. As a result, profits have actually declined on a YoY basis.

  Revenue Growth PAT Growth
Auto 55% 61%
Steel 31% 21%
Financials 27% 28%
Textiles 25% 74%
Banking 21% 22%
IT 20% 13%
Power 19% 6%
Pharmaceuticals 16% 13%
Cement 14% -66%
Engineering 14% 10%
FMCG 12% -3%
Energy 10% 78%

Retail investors need to be careful while picking stocks at this point of time. They need to be cautious of big sales numbers as they may or may not translate to higher income for the companies. However, a careful and disciplined investment approach can help the investors in maximizing their gains.

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Feb 23, 2018 (Close)