The pall of gloom over Dalal Street might just about lift a bit when the earnings of leading companies for the quarter ended June 2008 begin to trickle in. The reason for this rather contrarian bout of optimism: the first flush of advance tax numbers for the largecap companies that make up the Sensex indicates that the first quarter profits of these companies may beat estimates of most analysts.
Advance tax is paid by companies based on their expected profit for the respective quarter. A higher advance tax over the corresponding quarter a year ago indicates that the company’s profits are likely to be higher too.The sector that surprises most is banking, which has been under pressure thanks to global macroeconomic factors. Leading banks like State Bank of India, ICICI Bank, HDFC Bank, Bank of Baroda and Bank of India have paid a higher advance tax than the previous year.
Cement companies, on the other hand, don’t look too well-placed, with the likes of Ambuja Cement, Grasim, ACC and UltraTech paying lower advance tax. “Prima facie advance tax numbers belie the fear of slowdown in earnings,” says Sandeep Shenoy, Strategist at PINC Research. He says the cement sector could be affected due to the erosion of pricing power in infrastructurerelated sectors. Experts reckon that this being an election year, the government spending on roads, bridges—which require steel and cement—will slow down.
After the results for the Marchended quarter were declared, most analysts had lowered the earnings estimates for most of the leading companies. This also impacted stock prices, which have anyway been reeling under the effect of the subprime crisis and, later, rising inflation and oil prices. From its peak, the BSE Sensex is down almost 29 per cent (till June 19) and is expected to fall further. “In the current scenario, the absence of any bad news is good news,” says Shenoy. A flurry of impressive report cards may just prove to be a surprise trigger for Dalal Street.