Crash in commodity prices to hurt RIL earnings: Girish Pai, Nirmal Bang Institutional Equities

In an interview with ET Now, Girish Pai, Head of Research, Nirmal Bang Institutional Equities, shares his views on markets. Excerpts:

ET Now: Crack in commodity prices is great news for India but do we underestimate the negatives of this one?

Girish Pai: The crash in commodities is a reflection of the weakness in global growth and especially the Chinese growth in one sense and that I think is a negative for earnings of some companies. If you look at Sensex earnings, 45% to 50% of the earnings is exposed to global factors. So, you have the IT pack and you have some part of oil and gas, metals, so these are companies where earnings will get impacted, for instance, the earnings of RIL will get impacted.

The kind of crash we have seen in steel prices or some of those crude prices will impact upstream earnings like ONGC. ONGC's earnings will look good if it is in a certain band but if it falls below a certain price level, the earnings are going to be impacted negatively. Similarly, the steel companies not doing well has not only had an impact on their earnings, it also impacted the asset quality of PSU banks or even some of the private sector banks which have got exposure to steel companies, so that is the picture.

It is not all positive when commodities go down, there are certain companies which will definitely get benefited, the consumer companies for instance, while they have not shown too much of topline growth, volume growth has not been so great. The earnings have been pretty good because the soft commodity coming of has helped gross margins and operating margins for those companies, so earnings growth has been fairly good for that.