Sectors Under Pressure
A summary of the stocks alert under each of the sectors...
Airlines/Aviation....Stocks Alert: Jet Airways, Spicejet
Automobiles.........Stocks alert: Tata Motors, Ashok Leyland
Steel...................Stocks alert: Tata Steel, SAIL
Telecom...............Stocks alert: Bharti Tele, Tata Tele
Retail..................Stocks alert: Pantaloon, Shopper’s Stop, Trent
Pharmaceuticals....Stocks alert: Ranbaxy, Dr. Reddy’s
Airlines/Aviation
- There has been a sharp addition to capacities in this sector due to the entry of new players. Some routes like Mumbai-Delhi have witnessed a 70 per cent jump in capacities.
- This does not bode well for companies in the industry, as it is likely to erode their pricing power and result in a decline in profitability margins.
- Stock alert: Jet Airways, Spicejet.
Automobiles
- There has been a slow down in the sales of commercial vehicles. In fact, Tata Motors reported a mere 1.4 per cent rise in the sale of commercial vehicles for the quarter ended December ‘05.
- Going forward, with the interest rates expected to harden in the near term, there is expected to be a further reduction in the demand and a simultaneous rise in the cost of funds for the companies.
- Stock alert: Tata Motors, Ashok Leyland.
Steel
- Steel prices have witnessed a decline ranging between 10 to 20 per cent on account of excessive supply vis-à-vis demand.
- Going forward, steel prices are likely to remain subdued for the next few quarters, as the demand-supply mismatch is expected to continue. This would adversely impact the profitability of steel manufacturers.
- Stock alert: Tata Steel, SAIL.
Telecom
- This sector is faced with a consistent decline in revenue per user. The recent wave of offers, such as free incoming calls for a lifetime, etc. may ensure volume growth but these schemes will impact the company’s operating margins and could leave many small players bleeding.
- Stock alert: Bharti Tele, Tata Tele.
Retail
- The retail space is getting over-crowded with excessive investment in a few cities by a bunch of new entrants and existing players. This will lead to an increase in retail space and competition.
- Stock alert: Pantaloon, Shopper’s Stop, Trent.
Pharmaceuticals
- Generic drug prices are likely to remain subdued in the US market. This will impact pharma companies like Ranbaxy and Dr. Reddy’s which are mainly dependent on US exports for revenue.
- Stock alert: Ranbaxy, Dr. Reddy’s.
