Prakash Kumar

Technology – Rupee appreciation, wage hike in Apr-10, intense competion are pulling back what initiatlly promised a mouth watering guidance. Expected legislation against outsourcing and dometic norms related to STPI tax exemptions are adding its share of woes.Expect stable environment esp. because US geography is looking up.  P/E outlook for FY-11 is 18-22. FY10 results will be good but guidance once again muted esp. by the niche players.

Oil & Gas – Crude at $86+/barrel, watchdog over Iran, better than expected refining margins, demand of Oil as economy showing signs of recovery gives another mixed bag response for the power house sector. P/E outlook for Reliance 20-22. Reliance is looking for some acquisition overseas and it might translate something in FY-11. OMC will have another tough year on back of high crude and nothing forthcoming as far as implementation of Kirit Parikh recommendations. GAIL has a better outlook amongst everything else in O&G. As thrust for clean energy grows O&G is expected to get impacted.  Expect mid-way increase of LPG, fuel prices and some portion of KP recommendation implementation. FY10 results average, FY11 outlook dimmer.

Rate sensitive (Auto/Realty/Bank) – Inflation is here to stay and RBI will be forced to increase CRR/SLR/Bank Rate/ Reverse repo (individual or any combination of these instruments). As liquidity tightens – demand for housing will fall as loan rates will sky rocket. Same for auto loans. GDP growth can take care of some of these hike but only that much. Private Banks might outperform but PSU banks will have to take load of plenty of cheap credits to priority sector (agriculture) which will increase its NPA.  Residential housing will do better because of some incentives given by FM in Income tax while lot remains to be seen in terms of commercial construction which is facing too much trouble on commodity price increase and lack of demand.  P/E outlook to be downgrades by 200 basis points for corporates in this sector. FY11 outlook will be dimmer while FY10 closing numbers will be bright.

Commodities (Steel/Aluminium /Cement) – Another year of those high margin low sale type. Demands exists but not at current prices and their ain’t any sign of cooling either. Sugar is an exception where demand is latent.  P/E for metal commodities expected to go up current fiscal by atleast 2-4% while sales will remain at stable levels also on account of high cost of increasing capacity and higher crude/coke and iron ore prices. Downstream of supply chain companies like VBC Ferro, Sesa Goa, Gujarat NRE will do much better than the SAIL and the TISCO.  FY10 numbers will be sky rocket while FY11 presents a stable outlook.

Telecommuncations – 3G auction will liberate bandwidth issue and will bolster sales mainly on non-voice segment. Penetration in far flung area (with better margin) will increase. Good year expected for RelComs and Bharti. BSNL IPO might surprise by end of FY11.  A definite buy sector. Beaten down stocks expected to see greenery after long. FY11 is promising after a disappointing FY10.

Capital Goods/ Power – Always demand surplus sector but somehow L&T, NTPC, ABB, ALSTOM, BHEL, Siemens have not lived up to its high P/E valuations.  Adani, CAIRN, Tata Power, Rpower expected to do much better than the celebrated army. 11 & 12^th Plan suggest huge shortfall in capacity addition so demand still remains very high – constraints regarding longer gestation period, high import cost and lack of transparency from statutory body create a cloud of unknown sorts which make this sector laggard. Expect no-wholsome changes in existing scenario other than tweaking of some norms related to PPA (power purchase agreement) and FSA (fuel Supply agreement). FY11 will be however much better than FY10 in absoulte terms but far worse in % terms of growth. Lot of promise and so little on delivery.

…….To be continued for additional sectors.