If you look at the buying interest among investors, this should be the one safe haven that investors are moving to. After all, this is the one sector that has a huge global footprint and hence is not really impacted by domestic liquidity cycles. What you need to watch out for in this quarter is the guidance on revenues and margins as well as the share of digital revenues. While TCS does not give guidance, other larger players like Infosys, Wipro and HCL Tech do give you guidance. Focus on top-line growth picking up and rising share of big-value clients (greater than $100 million revenues). A rising digital footprint will be positive for stocks in IT. With volatile global markets, keep an eye on cross currency risks.
Banking and financials
This could be the sector that makes the difference to the Nifty overall due to its 40% weightage. Key parameters to watch for banks would be the net interest margins (NIM) and the asset quality. This is more so for private banks with banks like IndusInd Bank, Yes Bank and RBL Bank taking deep cuts on asset quality concerns. The financials could be a lot more complicated as NPAs on real estate outstanding could be a key factor. Lastly, look out for guidance on cost of borrowings of NBFCs. The shift to external benchmarking is likely to hit bank profits in next few quarters and that could hit profit guidance.
Automobiles and consumer staples
These two sectors, put together, account for over 20% of the Nifty index. The common challenge for both these sectors is the distinct slowdown in consumer demand. Autos are seeing an average fall of 30% to 40% on a YOY basis each month. That pressure will be obviously reflected in this quarter. However, watch out for pricing plans, especially after the tax cuts announced by the government. For the FMCG segment, the top-line growth could be the critical factor and here again it needs to be seen to what extent the tax cuts are passed on and its impact on profitability.
Capital goods and infrastructure
Let us look at capital goods sector first. This segment saw good amount of traction in the last quarter with a strong pick up in order flows. The concessional 15% tax is expected to trigger a spate of capital investments in the next few years and the broad plans may be announced in this quarter. That is a key metrics to watch out for. On the infrastructure front, there could be some pressure on the roads segment. This segment had been growing at a rapid pace but the troubles of rising debt at NHAI and the reduced tempo on road construction is likely to hit the road companies. While capital goods are likely to have a good quarter, infrastructure could be under pressure.
Oil and commodities
Finally, this segment is likely to see pressure. Most industrial commodities like steel, aluminium and copper are feeling the pressure of weak industrial output and falling global prices. The pressure of a slowdown in China will be felt in these sectors. Oil could be a lot more dependent on oil prices but that is most likely to be subdued as we saw in the aftermath of the drone attacks. The downstream oil companies could be an interesting segment to watch out for.