March Quarter Earnings: What to expect

It is that time of the month when companies declare their quarterly financial results. This is called as the earnings season. Infosys will kick off the season on April 15.

Usually, stock markets fluctuate on the back of corporate results. If results either meet or exceed expectations, along with positive management commentary, then share prices rise. If they fail to meet expectations, stocks often sink. As a result, knowing what to expect can help you ride the market highs and take advantage of the lows.

Ahead of the earnings season, Kotak Institutional Equities published a report detailing the sector-wise outlook. Here are a few things to know:

Sensex growth:

The aggregate earnings of the 30 companies on the Sensex is expected to increase 7.4% from the previous year, according to the Kotak report. In the December quarter, the aggregate earnings jumped nearly 20% on annual basis. According to experts, the March quarter is not likely to be better than the previous two quarters. However, it is expected that the March quarter may signal a bottoming out of the slowdown. This means, in the next quarters, companies may grow faster.

Laggards:

Banks are likely to be the biggest laggard this season, reporting a 10% decline on year-on-year basis. While PSU banks face a high tax rate, private banks and non-banking finance companies (NBFCs) are likely to suffer from a slow loan growth and a rise in costs. Auto companies are likely to report a fall in profits on the back of weak volume growth and an increase in costs.

Out performers:

Consumer products companies are likely to report a surge in net income, according to the report. While they may see a 11.6% growth in revenues from the previous year, profit growth may slow down by nearly 12%. Oil marketing companies are also expected to report huge profits, due to a large compensation from the government, Kotak said. Companies in the telecom, media and pharma sectors may also report a strong growth in revenues in the quarter.

Tech-space:

IT companies are not expected to report the bumper profit growths like the previous quarters. While smaller companies like Wipro, HCL Tech and Tech Mahindra are likely to report a strong growth, Infosys may see a fall in revenues QoQ. The key problem for the IT sector is the appreciation in the rupee. This is because IT companies earn mainly in dollars.

2 links

Turnaround story: March quarter gives bleeding companies of FY13 reason to cheer. Read more.

The odds are stacked against TCS’s ‘FY15>FY14’ statement. Read more.

 

1 Number

18.1%

The net sales of top Indian companies may rise between 12.2% and 18.1% in the quarter ended March 2014, according to a LiveMint report. This comes at a time when high inflation, interest rates and a slowing demand has been plaguing Indian companies. The sales growth is likely to lead to a 7.4%-13.2% jump in net profit for the 30 companies that form the Sensex, the report added.

Source : 

Kotak 

Gold as Hedging Tool

What could be the most effective hedge during financial instability and in times of geopolitical uncertainty? The answer obviously is gold. Gold is also considered a safe haven against currency devaluations or any other crises. There have been many instances of war and political tension in the past where gold always proved to be the most trustworthy asset. Recently gold prices have bounced back and climbed 8.9% this year due to increased possibility of a war breaking out between Russia and Ukraine. This is after a 28% plunge in gold prices last year. Also, two of the world's biggest gold buyers i.e. China and India continue to spurt the gold demand. In fact, imports by India more than doubled in March 2014 as compared to February 2014, as per government sources. This is notwithstanding several measures adopted by RBI to curb gold imports. Considering its safe haven status and inflation hedging capability, we urge investors to have at least some allocation to this yellow metal in their portfolio. 

Transfer Pricing With Cyprus

CBDT has now notified “CYPRUS” as a jurisdictional area under section 94A of the Income Tax Act, 1961.

It has become a matter of big concern for the companies involved in trade relations in CYPRUS. All these companies will now have to follow the provisions of Transfer Pricing while dealing with any party (whether or not “Associated Enterprises” under section 92A of Income Tax Act, 1961) in this country.

The immediate implications of the above Notification on investments routed through Cyprus are higher disclosure requirements, applicability of transfer pricing provisions and higher withholding of tax in India.

In particular:

·     All parties to a transaction with a person located in Cyprus will be treated as "associated enterprises" (i.e. related parties) and the transactions will be treated as international transactions that invoke the application of India's transfer pricing regulations (including the requirement to maintain documents, perform benchmarking analysis, etc).

·       Any payment made to a person located in Cyprus shall be subject to a withholding tax of 30%.

·       No deduction shall be allowed in respect of any expenditure or allowance arising from the transaction with a person located in Cyprus.

·     Every person dealing with any person located in “CYPRUS” will have to comply with the provisions of sections 92 to 92F of Income Tax Act, 1961 irrespective of the fact that whether they fall into definition of “Associated Enterprises” under section 92A of Income Tax Act, 1961.

·     All the persons dealing in “CYPRUS” will have to show their International Transactions at arm’s length price and comply with the requirement of furnishing report under section 92E of Income Tax Act, 1961 i.e. Form 3CEB through a Chartered Accountant, duly verified and certified by him, on or before 30th September of every year prescribed by the authority, furnishing all the required details.

Withdraw money from the bank if you don't have an ATM/Debit card or even if you do not have a bank account.

On Monday Bank of India today became the first PSU lender to allow withdrawal of funds from its ATMs without a debit card. The public sector bank has launched a domestic remittance service called 'Instant Money Transfer (IMT)' that allows card-less cash withdrawal from it select ATMs which are tuned for this facility.

The IMT facility allows a customer to send money to a receiver only by using the receiver's mobile number through the bank's ATM or using internet banking facility. The receiver may withdraw money from designated BoI ATMs without using a debit card.

The receiver would receive partial details for cash withdrawal on mobile phones.

Procedure for transferring the amount
BOI customer will have to provide the receiver's mobile number, a code and amount through a text message.

The receiver then receives a code form the bank and then can walk into any BOI ATM that has IMT facility to withdraw the money within 14 days of the transfer without using a debit card or even if that person does not have a bank account.

How much you can transfer

With this facility, a beneficiary can withdraw up to Rs.s. 25,000 through IMT transaction on monthly basis while per transaction limit is set up Rs.s. 10,000.

Charges
The sender will be charged of IMT fee of Rs.s. 25 for every transaction.

Merger of Ranbaxy with Sun Pharma

On Monday, Sun Pharmaceutical Industries Ltd said it will buy Ranbaxy Laboratories Ltd  in a $3.2 billion, taking Ranbaxy's debt into account; the transaction is worth over USD 4 billion. Thus, creating the world's fifth-largest generic drug maker from two firms struggling with quality issues in the lucrative United States market

Highlights of the deal

• The merger will see Sun Pharma’s revenues jump by a healthy 40% but its operating profit will rise by mere 7.5%, based on pro forma 2013 financials. Its operating profit margin will decline from 44.1% to 29.2%. Thus, the merger will have a negative effect on its performance in the near term.
• Every Ranbaxy Laboratories shareholder will receive 0.8 shares of Sun Pharma. This is because Sun Pharma is bigger than Ranbaxy Laboratories in terms of sales, profits and stock market value. The market cap of Sun Pharma is Rs 1,22,000 crore, while that of Ranbaxy Laboratories is just over Rs 18,800 crore.
• Daiichi Sankyo, the Japanese owner of India's biggest drug maker by sales, will hold a stake of about 9 percent in Sun Pharmaceutical after the deal.
• The combined entity becomes the biggest pharma company in India and  there will be no company by the name Ranbaxy Laboratories, it will be Sun Pharma only
• The combined entity will have operations in 65 countries, 47 manufacturing facilities across 5 continents, and a significant platform of specialty and generic products marketed globally, including 629 ANDAs.
•  India’s government, high courts, competition commission all need to approve the merger. Besides this, 75% of shareholders of both Ranbaxy and Sun Pharma have to approve the merger and the ratio.
• According to Sun Pharma the process is expected to complete by December 2014

P/E Ratio : A Fundamental Analysis Tool

While valuing an individual share or stockmarket indicators such as Sensex or Nifty, financial analysts give due weightage to the price-earnings ratio (P/E ratio). This ratio is also known as earnings-multiple ratio.

This ratio is computed by considering the current price of a share divided by its earnings per share (EPS). For instance, let us take cement company ABC whose most recent price is R1,310 and EPS is R21. The price-earnings ratio will then be R1,310/21 = 62 times. It means that one rupee earned by this cement company is perceived by the market as equal to R62. It reflects the price currently being paid by the market for each rupee of reported EPS. In other words, the P/E ratio measures investors expectations and the market appraisal of the performance of the firm.

Variants of P/E ratio

Trailing P/E: When the P/E ratio is computed by considering the EPS of the last four quarters, it is called trailing P/E. The drawback of this method is that it considers only the past data and not future earnings or growth potential.

Forward P/E: Under this method, the P/E is computed by considering the EPS of the projected next four quarters. This is also known as leading P/E. This method is better than trailing P/E as it considers the firms growth potential.

Significance of P/E ratio

The P/E ratio is directly linked with the fundamentals of a company. The ratio consider the past performance as well as the future growth of the firm. To a greater extent, this ratio also considers the debt capacity of the firm. For instance, when a firm has higher amount of debt in its balance sheet, it affects the EPS and share price in many ways. Though debt provides firms the benefits of leverage and tax shield, it also enhances the probability of bankruptcy and risk to the equity shareholders. Generally, firms with higher amount of debt, such as heavy and capital intensive industries, tend to have a lower P/E ratios than less capital intensive industries. Firms exposed to economic cycles have a lower P/E ratios than those not affected by them. For instance, firms in the FMCG sector generally have higher P/E than those in the iron and steel segment.

P/E ratio & valuation of shares

Suppose you are planning to buy ABC companys share. Compare the P/E ratio of this company with that of similar companies in terms of size. Having identified comparable companies, you have to compute the P/E ratios of these firms, after adjusting for the earnings, and obtain the median, which is also known as the industry median.

Now, compare ABCs P/E with that of the industry median. If ABC has a P/E higher than the industry average, this means that market have high expectations from the firm in the near future and, often, this could be stated that the company is over-valued.

If ABC has a P/E lower than that of the industry average, it need not necessarily mean that the company is under-valued. The market might believe that company is not going to perform well in the near future. So, whether a share is cheap, high, or fairly priced, can be determined by each investor only after duly considering other quantitative and qualitative factors of the company.

Though P/E ratio computations looks simple, there are difficulties in adjusting the earnings to make it comparable across peer group. But, if done correctly, it can provide valuable inputs for taking the right investment decisions.

Source : 

The finacial express 

Is Inflation A Friend or Enemy ?

Is inflation your enemy? Anybody and everybody can answer this question by giving an affirmative response,” Yes”. Inflation is indeed our enemy as far as consumables is concerned. So as far as food prices, cost of education, cost of medical services etc. are concerned, inflation is indeed bad. After all, rising prices indeed hit our pockets and make purchasing power of money go down. But is this logic of inflation hitting us hard applicable in all aspects of life? The answer is no. In case of investment assets, the logic works just opposite way in many scenarios. This is what investors need to understand and capitalize on. There are some asset classes which respond positively to inflation and in fact help us build wealth as the price of these assets appreciate because of inflation. Let us look at some of the investment assets that we hold in order to understand the other impact of inflation which is surprisingly positive and helps us actually build wealth.

Real estate and inflation: All those who own real estate, especially residential premises in cities, should thank inflation for making them wealthier even though it is notional wealth. With cost of construction going up, the price of new houses has gone up making old houses costlier as well. Though housing prices have gone up for other reasons as well, inflation has definitely been a major contributor. For those, who don’t own a house the act of owning a house has become tougher with passage of time. In fact, real estate in way has been largest wealth creator in India even during recessionary period which started post 2007 when equities failed did not do.

Inflation and high yield instruments: During high inflation period, financial institutions issue bonds which offer high yield. The high yield offered are offered a long period of time as well. For example, in India currently tax free bonds are being offered for a period of 20 years with the same yield. Today getting yield of 8.5% to 9% tax free is possible only because inflation is high and benchmark yields have gone up. This has forced companies and other issuers of bonds to come out with high yield bonds. So if an investor buys these high yield bonds now, he can reap on benefits of high yield even during the time when inflation becomes low. After all, the regulatory in the country i.e. RBI is also working hard in order to pull down inflation. Buying high yield quality debt during high inflation is good strategy for wealth creation.

Share prices and inflation: Companies are the biggest gainers of inflation. Moderate to high level of inflation actually helps company make good profits. This is how it actually works. From the time a company buys raw material and to the selling of finished goods, inflation makes the price of goods go up. This gestation period of conversion of raw material into finished goods helps companies reap the benefit of inflation as the price of finished goods rises. The companies which can pass on benefit of inflation to the consumer tend to gain. In the high inflation period FMCG find their share prices inching up as they can pass on inflation to the end consumers. Holding shares of the companies which can pass on inflation to the end consumer adds up to the wealth of shareholders.

Inflation and financial innovations: Inflation has been a trigger for financial innovations all over the world. The idea of beating inflation has been of paramount importance for wealth managers and to some extent for regulators as well. Introduction of inflation indexed bonds world over is a proof of the fact. The idea behind inflation index bond is to help investors beat inflation. This means that with high inflation, investors tend to get higher return. But inflation index bonds are not just helpful in

beating inflation; they also help in making capital gains for those of sell these bonds and exit. In India, this option is not available currently. While beating inflation is a challenge that investment planners work on, inflation is a double edged sword as far as investment planning is concerned. Befriend inflation to make money from it wherever it offers such opportunity. Source : Moneycontrol