Rajat Rajgarhia of Motilal Oswal Securities says that excluding banks, the QoQ margins will stay flat for most of the companies and the profits of banks may decline due to the Held To Maturity, transfers.
Among the non-ferrous stocks, he says that they are expecting strong numbers from Hindalco, while he feels that Tata Steel and SAIL may post strong sequential numbers.
He adds that oil marketing companies may see a strong net profit growth and he expects strong numbers from the auto and infrastructure sector.
Excerpts from CNBC-TV18's exclusive interview with Rajat Rajgarhia of Motilal Oswal Securities:
Which sectors do you expect will deliver positive surprises this time?
We will see a solid set of numbers coming from corporates this quarter. On an average, we are looking at around 27-28% earnings growth from a universe of roughly 125 stocks that we cover.
A couple of sectors where we expect strong numbers are autos and infrastructure, which basically covers engineering and construction. These two sectors are expected to report a solid set of numbers this quarter.
When you say autos, you mean trucks and the two wheelers or any particular segment?
In autos, one will see strong numbers from all segments whether it's two wheelers like Hero Honda Motors, Bajaj Auto or whether it's four wheelers like Maruti Udyog and Tata Motors. This is because volumes from all these companies have been good and even if one does some kind of moderation in Q1 over Q4 on margins that came in, it will result in strong numbers for them across the board.
What are you expecting from oil and gas, especially the marketing companies?
In oil and gas, for marketing companies this quarter, in terms of YoY, growth will be strong because last year these companies had poor numbers as the sharing numbers came out in the later half of the year. But this quarter will see strong numbers on the overall reported net profits from them, because one will see numbers being spread out more evenly during this year, compared to last year when bulk of the numbers came up in the second half.
For textiles, you are actually expecting a decline in the PAT and your report mentions that it is primarily because of Arvind Mills. How hard do you expect the company to be hit?
Denim prices have fallen significantly in the last 12 months. Although there were some news that very recently prices have stabilised, overall the denim cycle, both in global markets and in domestic markets, has seen lot of softening. We think that this itself will be good enough to pull down profits of some of these companies.
What about metals? What do you expect companies like TISCO and SAIL to report this quarter?
For TISCO and SAIL, the YoY numbers might not be very strong because last year, in the first quarter realisations were very high. But sequentially the numbers for TISCO and SAIL will be very good. Next quarter onwards, you can expect very strong YoY numbers for steel companies.
On the whole, metals will do pretty well this quarter.
What about banks, public sector banks?
For banks, we are expecting a decline in profits this quarter mainly because of the investment portfolio, because a lot of banks have made further transfers to their Held To Maturity, HTM, which will result in some kind of provisioning. A lot of banks who have their AFS portfolio opened up, will again see good losses there.
We almost had a spike of 60 basis points during the quarter in the bond yields. From the first week of May, we had seen Prime Lending Rate, PLR, hikes across the board. I think that at least on the net interest income, we must expect some good numbers from banks, but on reported profits, the numbers are likely to be disappointing for PSU banks.
On an average what do you expect to see in terms of margins? Do you expect to see some contraction this time?
Not really because if one excludes banks, then we will expect quite flat margins because YoY if you try to look at most of the companies whether it is autos, cement, metals or engineering, most of them would be reporting good margins. Sequentially, you might see some kind of a flattish trend, but YoY one will see improvement in margins in most of the core sectors that we are talking about.
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