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The mounting Greek crisis and the uncertainty it brings, have turned the Street cautious and led to markets’ fall. Although markets recovered a significant part of the losses as the day ended, companies with visible exposure to Europe saw their share prices fall sharply.
Some of these stocks were already under pressure last week, when the possible exit of Greece was being discussed. They lost between one and six per cent (a few ended flat) of their value on Monday.
“The extent to which the markets can correct cannot be gauged looking at the multiple risks that are involved,” says Mayuresh Joshi at Angel Broking, who believes the flight towards the dollar and precious metals might be there till the clarity on the Greece matter comes through, keeping equity markets volatile.
Nilesh Shah, managing director at Kotak Mutual Fund, says certain stocks in IT, pharma and auto ancillaries having significant exposure to Europe will underperform. Since Greece issue is well known for some time, it is unlikely to cause as much correction as in the 2008 Global Crisis, said Shah. From India's point of view, our markets would witness a little lower volatility than peers as we are least impacted from the unfolding events in Greece and EU, he added.
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Anil Sarin, executive vice-president at Edelweiss Global Asset Management, echoes a similar view. He says the impact on Indian equities market will be limited and the correction offers good entry opportunities for investors.
Nevertheless, for now, while the broader market will be under pressure, among the stocks that could see more heat would be companies with higher exposure to Europe. HCL Tech generates about a third of its revenues from the European region and looking at the uncertainties in Europe as well as the currency headwinds, the stock could remain under pressure, say analysts.
Crompton Greaves (excluding the consumer business) has significant exposure to Belgium and other parts of Europe. After the acquisition of the Belgium-based Pauwels Trafo/Pauwels Group in May 2005, the company had acquired GANZ (Hungary), Microsol (Ireland), ZIV (Spain) and Sonomatra (France). These acquisitions had pushed the company into the league of the top electrical companies in the world. However, significant exposure to Europe has brought pressure on the company’s stock price.
Havells is another stock to watch, according to analysts looking primarily at translation impact of currency due to its Sylvania operations. The impact on earnings, however, might not be meaningful due to lower profit contribution in the overseas business, say analysts.
Cox & Kings, too, was under the spotlight as a significant part of the Ebitda (earnings before interest, tax, depreciation and amortisation) it generates is from the UK travel and education business. The stock that had been trending down for more than a month fell 11.6 per cent intra-day but closed 5.6 per cent lower at Rs 236.20 on Monday.
Amongauto ancillary companies have exposure to Europe like Motherson Sumi and Bharat Forge. Companies like Motherson Sumi and Bharat Forge are the ones that can see risks increase with the European crisis deepening, says Joshi. Bharat Forge derives about 25 per cent of its revenues from exports to Europe.
Besides, pharma and tech players that export to Europe are likely to feel the pressure. This includes Dr Reddy’s and Aurobindo — the latter had acquired Actavis to consolidate European business.
Besides, Jubilant Life Science’s licensed chemical business, Dr Reddy’s and Lupin’s German business can see some pressure, says Surjit Pal at Prabhudas Lilladher, who believes that the impact will be seen only in the second quarter of 2015-16.
Though pharma companies have so far made up for the cross currency headwinds through strong US growth, revenue growth would be much higher if Europe also contributed well.
While the European uncertainty currently poses risks to these stocks, in the event of a resolution coming through and dollar versus euro gaining back the favourable position, the same stocks can rebound, believes Mayuresh Joshi.
