Passive show by Nifty cos

Sowmya Krishnan

SALES for the 50 companies comprising the Nifty Index for the July-September 2001 quarter remained almost stagnant, reflecting that the economy is still in a slowdown mode.

The performance of core sectors such as steel and cement was not very encouraging.

Most companies recorded moderate topline performance, with a few exceptions.

The aggregate sales for the Nifty companies grew marginally, at 0.87 per cent. The one bright spot was the 5.6 per cent drop in operating expenditure (excluding interest costs except for finance companies). The difficult industrial environment appears to have helped most Nifty companies maintain a tighter rein on costs, ramping up operating profit margins.

An analysis of the sales pattern of the Nifty-50 revealed the following trends:

* True to its label as a defensive sector, the pharmaceutical segment recorded an impressive performance for the quarter. Despite the slowdown in the domestic pharmaceutical market, companies such as Dr Reddy's Labs, Cipla and Glaxo put up a good show. This was mainly due to a shift to the export market and reduced dependence on the home market. Dr Reddy's performance was probably the most noteworthy, with a 212 per cent growth in sales. For the July-September 2001 quarter, that to the US generic market contributed 36 per cent of the sales and 61 per cent of the total operating profits of the company.

* Refining and petrochemical companies performed poorly. Reliance Industries' sales dropped 26 per cent to Rs 56,790 crore, significantly denting the overall picture for the sector. Excluding Reliance Industries, the sales growth for the industry is around 4.4 per cent. HPCL and IPCL and India's largest refiner, Reliance Petroleum, also recorded unimpressive sales growth.

* The usual sheen was missing in the technology companies which recorded modest growth rates viewed in the perspective of the last couple of years. While frontline companies, such as Infosys and Satyam, were able keep up with expectations of a 50 per cent growth, NIIT suffered a setback, primarily due to a slump in its education business. Technology stocks perked up in expectation of the pressure on costs forcing global IT majors to step up outsourcing from Indian companies, but a clear picture about the prospects for the sector is yet to emerge. It could be a couple of quarters before the impact of the slowdown on the constituents of the Indian software sector can be fully gauged.

* Riding a boom in the motorcycle market, Hero Honda's turnover rose 40.46 per cent. Despite tough competition, the company posted a higher turnover primarily due to a change in the product mix favouring high-value items.

* It was a tough quarter for FMCG companies. Both industrial and agricultural incomes grew at a slow pace. This has pressured consumer spending, affecting the offtake for consumer durables. The FMCG major, Hindustan Lever, posted a marginal 7 per cent growth in turnover. With no improvement in the economic indicators, these companies might find it difficult to ramp up volumes in the near term.

* The July-September 2001 quarter was not very bright for the cement companies. The top companies, such as Gujarat Ambuja and Larsen and Toubro reported single-digit growth. Overcapacity has lead to a demand-supply mismatch. However, cement offtake has been improving and with the construction activity picking up, volumes could improve. After the recent consolidation moves, the industry is dominated by two majors _ Grasim and Gujarat Ambuja. An improvement in the demand-supply equation could give the two considerable pricing power.