India Companies to slow down in Quarter 4

At a time when all attention is focussed on the stock markets, Indian companies seems to be headed for another rough quarter ahead. Companies are largely expected to report a slowdown in sales and reduced margins in fourth quarter, which is also the financial year end.

An analysis of the companies and consequent industries that represent the sensex show that there will be more industries that will struggle in the next three months than those who will sail through. A rapidly changing external enviroment, in US and in the commodities market is also expected to increase uncertainly in corporate performance in the near term.

The signs of a slowdown, of course, has been visible in the current financial year. Over the last two quarters, automobile companies Tata Motors and Mahindra & Mahindra which make commercial vehicles and tractors and more sensitive to ground realities, have seen their profits drop. Though, the companies have managed to sell more, they have had to cut prices, despite an increase in input costs. Says brokerage firm First Global's Shankar Sharma: "We continue to be negative on Tata Motors."

In the last couple of years, companies grew rapidly as there was a demand pull in nearly all sectors. Coming out of years of cost-cutting in the early 2000s, companies reported a big growth in profitability. In the last two years, a spurt in input prices like metals and fuel first ate into the margins.

Now, with demand growth tapering off, analysts expect companies to find the going tough. Says a Kotak Mutual Fund manager: "There was a pent up demand that saw numbers come in rapidly. From now on, it will be a more stable growth for companies."

The sectors that will be affected most will be automobiles, commodities and the IT sector. The overall global sentiment in markets across the world is expected to have an affect on metals, petrochemicals and even oil. Though, in the current quarter companies like Tata Steel and Hindalco have been more affected by large acquisitions, lower metal prices are expected to supress overall sales.

There could be a silver lining. Analysts expect that the slowdown in US will eventually have a bearing on oil prices. They expect global oil prices to ease in the coming months, leading to cut in input prices across industry. Says the Kotak Manager: "In that scenario, a slowdown in demand can be arrested in the near term."

The industries that are expected to beat the trend are telecom firms which are adding million of new subscribers. Companies who also have committed orders for building infrastructure like Bhel and L&T will also sail through and not be affected seriously.