What do you think of the overall earning season? How are you looking at the coming quarters in light of the second Covid wave?
The fourth quarter has been by and large very good and lots of recovery was seen. Pent-up demand helped us gain back a great part of what we lost in Q1 and Q2 and as the economy opened up reasonably well in January, February and March, we saw the impact of that coming through.
Having said that, early April onwards, a second wave of corona has come through and this time it is fairly widespread, hitting the interiors of the country as well. As a result, we definitely see demand destruction. Of course, it is not anywhere close to what it was in Q1 of FY21. That time, it was practically zero but this time, it may be 30%, 40% or 50% of a normal quarter and to that extent, earnings will get impacted and things may start improving only Q3 onwards. The second quarter or Q2 will also be a little bit disrupted.
The Street was a bit disappointed by numbers. But it has continued to remain a favourite among the analysts. Do you believe that the overall competitive landscape in telecom is going to intensify?
The competitive intensity has come down over the last couple of quarters and while a lot of things are getting better, the cash flow which they have generated has also got better. Today the real competition is between three players and among them Vodafone has its own challenges. So structurally, the industry is getting better. More and more data consumption is going to go up and it will be a slightly longer process when the ARPU improvement will happen. It is only a matter of time before ARPUs start going up.
How are you viewing this rally in commodities? We are seeing quite a rally in steel stocks. Do you expect this momentum to continue? Should we move to those names which have not moved as much — PSUs like Nalco, NMDC etc?
The ferrous metals cycle has been doing well and whenever there is a significant monetary policy intervention, commodities in general tend to do well. This time around, because of the China demand and some of the supply chain disruptions, the metals have done well in general and more and more fiscal deficit is being planned across the globe and that will augur well for metals.
So to that extent, it looks reasonably well placed. We have seen a very sharp run up and hence it looks fairly aggressive and it might consolidate but I do not think it is reversing anytime in a hurry. So this is here to stay for some more time. Again, these are global dynamics and one has to keep watching very carefully and cannot say for sure that this will continue to happen but so far metals look well placed.
The consumers of metals and commodities — consumer durables and auto — have already seen the impact of higher commodity prices in the third quarter. Do you see this exacerbating in the first half of FY22? Will India Inc. face profitability pressure?
Most of the user industries — specifically consumer products, capital goods or automobiles and even infrastructure players — would have to take the brunt of the commodity price hike and it has to eventually pass on to the consumers. There is a squeeze in the margins and this is happening in the middle of a demand slowdown in Q1 and Q2 because of the second Corona wave. We will see both coming together and to that extent, right now markets are a little bit more complacent about its impact and we are not seeing very much getting reflected in the current market mood.
So I sense complacency but yes, they are initially getting impacted on the margins and eventually it will have to be passed on hence it will get reflected in inflation if it continues to sustain.
