Dented by derivatives

There’s a tentative sense of relief on Dalal Street. The April-June quarter results of several companies are in, and the good news is that there are no nasty surprises.

That’s what grateful analysts were heard telling each other at the end of July third week, as the Sensex gained more than 1,000 points in just a couple of days.

A Business Today analysis of the results of 112 companies that were available at the time of writing shows that the aggregate topline has risen by 25 per cent, but the bottom lines have inched up just 3.6 per cent.

The culprit appear to be the twin problems of forex losses in the derivates market and higher expenditure due to a sharp rise in the prices of most commodities, including oil and steel. “To a large extent, the initial numbers are in line with expectations,” says Sandeep Shenoy, Strategist at PINC Research.

Several companies such as Tata Consultancy Services and MindTree, and some non-IT companies such as Biocon have made provisions for forex losses due to the depreciating rupee.

Analysts do seem a bit concerned about the guidance for the whole of 2008-09, though. A J.P. Morgan report says that Satyam’s weak second quarter outlook combined with similar outlook from Wipro will raise concerns over the slowdown.

It says all companies (in the IT sector) continue to indicate a 20 per cent revenue growth for the year. “We do agree that this estimate will continue to get questioned given the tough environment, but... offshore momentum is increasing and companies (will) meet this growth profile,” says the report.

Investors will get a clearer picture of the slowdown when the heavyweights in other sectors such as automobile, steel, cement and banking announce their results.

—Virendra Verma