The Nifty 50 Index is up 12 per cent this year. It now trades close to 24 times its TTM earnings. A number of sectors trade at expensive valuations - from FMCG (P/E of 40x) to pharma (37x), from realty (41x) to media (54x). Only three sectors now trade below the Nifty P/E (see Figure 1). Here is how these sectors and some of their companies are doing.
Energy
High inventory gains have helped oil-marketing companies (OMCs) offset the lower gross refining margins (GRMs) in the December 2016 quarter. Private-sector refiner Reliance Industries reported GRMs of $10.8 per barrel - lower than the $11.5 per barrel it reported in the corresponding quarter of the previous year.
Technology
Casting a dark shadow over earnings of technology companies operating in the US are President Trump's protectionist polices and hiking of the H-1B visa charges. According to Ambit Research, this could hurt the aggregate margins of the top six Indian tech firms by 470 basis points (bps) over FY18-20, with Cognizant, which has an estimated 21 per cent of its workforce in the US, taking the maximum hit. TCS, with an estimated 11 per cent workforce in the US, is likely to take a 350 basis-point hit in margins over FY18-20. Infosys is likely to take a hit of 530 bps; and HCL Tech, 375 bps (Ambit Research estimates).
Infrastructure
The infrastructure sector had a tough 2016. The much-awaited capex recovery didn't happen and even in industries that saw fresh ordering, like roads, power or wastewater infrastructure, high competitive intensity remained in place as companies chased only a handful of large orders.With demand growing only 0.6 per cent (YoY, January 2017), the power sector struggled with demand weakness.
This column appeared in the April 2017 Issue of Wealth Insight.
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