Earnings' checklist: Key sectors one should keep an eye on

With high inflation and low growth plaguing the economy, the results' season has turned important.

Both analysts and investors should be keenly watching the key sectors and numbers, as these will indicate how bad things really are.

Till now, some of the key results have been a mixed bag. In information technology, while Infosys has disappointed, Tata Consultancy Services beat expectations significantly.

HDFC Bank and Axis Bank have declared steady numbers. With the results season warming up, some of the parameters one should be looking at in the key sectors include: 

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FMCG

The fast-moving consumer goods category reflects the consumption story, especially the rural one, which has been driving the numbers of companies like Hindustan Unilever.

Key parameters would be margins of these companies, indicating whether they were able to pass on high input costs or not. Volume growth plays an important role. Also, a piling of inventory would mean things are not so good.

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Banking

Crucial, as it is the economy's backbone. Low credit offtake implies companies or individuals are not borrowing. That, in turn, means low expenditure and so on.

But this results season, the key number will be banks' non-performing assets. There are serious concerns about the asset quality of banks, as more and more companies are going into corporate debt restructuring and a number of sectors like infrastructure and power are in trouble.

To gauge the profitability of a bank, the net interest margin (NIM) is key. NIM is a measure of the difference between the interest income earned by the bank and the amount of interest paid.

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For example, HDFC Bank reported a 31 per cent increase in net profit for the first quarter of 2012-13 over the previous corresponding period.

The NIM was 4.3 per cent in April-June, compared with 4.2 per cent in the March quarter, meaning their interest margins were flat.

The lender reported steady asset quality, with the ratio of net NPAs to net advances at 0.2 per cent as of end-June, unchanged from a year before. This shows the quality of their loans is good and the lender is not facing any major repayment problems.

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Oil and gas

With the wholesale price index hovering at a seven per cent rise, crude oil prices are of prime importance, as it is an important component that will stoke inflation.

However, oil marketing companies here suffer significantly because they have to sell petrol, diesel and cooking gas at a discount. This causes them serious losses. For oil refiners, the gross refining margin is an important figure.

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This shows how much revenue the company generates from a barrel of crude. This forms the operating margin for refining companies. Whereas, for oil marketing companies the fixed margin is an important number.

It indicates the profits from marketing the products. Results of companies like Reliance Industries would be an important indicator of how this sector has been performing. 

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Automobiles

This industry is an important sector, as it signifies consumer confidence, and is a huge consumer of key raw materials like rubber and steel. Volumes are important for this industry.

"Since this is the lifeline of an auto company, a dip in this number is bad news," says Alex Mathew, head of research, Geojit BNP Paribas Financial Services. Car sales figures in June continued to be dismal due to high interest rates, petrol prices and policy uncertainty over diesel cars. For example, Tata Motors, the third largest player, posted a 22 per cent drop in sales for the month. 

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Infrastructure

Without growth in this sector, the economy will not grow in a balanced way, says G Chokkalingam, CIO and ED, Centrum Wealth Management.

In the results of an infrastructure company, look for the order book position, inflow of new projects and projects implemented, which will give an idea about the momentum in the business and revenue visibility.

An-other aspect to keep a tab on is the working capital position and interest cost, to gauge whether the operations are efficiently managed.