The financial crisis in the United States has had a huge impact on the stock markets worldwide. On Friday, the Sensex fell by a whopping 800.51 points or 7.07%.
The financial crisis will have limited impact on most sectors
MUMBAI: The financial crisis in the United States has had a huge impact on the stock markets worldwide. On Friday, the Sensex fell by a whopping 800.51 points or 7.07%.
The bigger question, though is, how will the slowdown in the US and Europe impact various sectors in the Indian economy. DNA Money polled analysts to find out. To know what they had to say on various sectors, read on.
Auto: The direct impact of the slowdown would be only for Tata Motors, as JLR sales would be impacted. It is believed that there is a plant shutdown at Jaguar as sales are falling due to lower demand. Apart from Tata Motors, none of the Indian companies will be directly impacted by the slowdown in the US or Europe. Hero Honda is a good pick in the sector.
Banking: Lesser money coming from abroad has increased opportunity for lending for domestic banks. This should provide a boost to credit growth. Also, if capital inflows remain very low, at some point, say nine months down the line, RBI would look at monetary softening. ICICI Bank would be the most impacted in the banking industry because of its higher foreign exposure.
Good picks in the sector are HDFC Bank and Axis Bank.
IT: Sentiments are negative for IT companies right now. Larger software companies having more exposure to the banking, financial services and insurance (BFSI) segment will be affected. The crisis will slow revenue growth as market sizes have fallen. Billing rates are expected to be under pressure or remain flat. The slowdown is akin to a cyclical slowdown. Margins are also likely to be under pressure. Some analysts expect outsourcing to increase, which augurs well for the IT industry. Analysts maintain that the market is factoring the worst-case scenario. Infosys is a preferred stock. Smaller IT companies like MphasiS, Sonata Software and NIIT Tech are also good picks.
Metals: Major impact would be for Tata Steel through Corus and for Hindalco through Novelis. To that extent, any slowdown will affect these companies.
Power: Power companies are basically domestic play. Impact of slowdown in the US and Europe on Indian power companies would be very limited. Financing would be impacted to some extent as Libor has gone up. Good picks in the sector are CESC, Gujarat Industries Power Company (GIPC).
Engineering and Capital Goods: No immediate impact for engineering and capital goods companies. Engineering is a very capital-intensive on the customer side of the business. The slowdown would not have a direct impact on the sector. Indirect impact could be in the form of delays of new projects or execution delays. This would, in turn, translate into lower order-booking. International order pipeline is expected to dry out as well. Good picks in the sector are Punj Lloyd and Larsen & Toubro.
Cement: No direct impact of the slowdown in the US and Europe on Indian cement industry as most consumption takes place in the domestic market. The industry is currently surrounded by various other concerns. For one, costs pressures have increased tremendously (due to higher fuel and coal costs) leading to contraction in margins. Excess supply is expected in the next 6-8 months. Also, decline in domestic gross domestic product rate does not bode well for cement.
FMCG/Consumer goods: No direct impact. It’s more or less driven by domestic inflation and higher food prices. This could lead to a marginal 5-7% knock-off from volumes. Also, a lot depends on disposable income. Growth might slow down but this does not mean that employment levels will go down. FMCG right now will benefit from lower commodity prices. Plam oil prices, a key input in making soaps, have declined considerably, which augurs well. Marico, Nestle, Pidilite and Godrej Consumer are good picks.
Retail: Retail companies would not be directly impacted by the slowdown. Unless disposable income of consumers reduces, the industry may not be affected much.
Further, it should benefit from the festival season now. However, concern is that most retail companies have huge debts on their books. Raising equity is current markets does not seem attractive and more debt would harm the profitable of the companies.
Pantaloon is relatively better than other stocks.
Pharmaceuticals: The pharma industry is not hit by economy slowdown as such. Demand or consumption of medicines would not be majorly impacted by the slowdown. Only funding could be a problem. Good picks include Piramal Healthcare,
Sun Pharmaceutical, Lupin and Glenmark.
Real estate: Real estate is one of the worst-hit sectors. Funding plans of most companies are likely to take a hit. Most analysts recommend staying away from realty stocks.
Hospitality: This sector would be hit because of the slowdown in the US and Europe. If companies are laying off employees, then tourist inflow in India would fall, affecting hotels business drastically. Occupancy rates are already showing a decline of 4-5% on an average since August 2008.
p_pallavi@dnaindia.net
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