40 stocks that are defying a widespread trend in India Inc right now

While the former has been more widespread in certain sectors, the latter has been a dampener in a boom year for corporate profits in India. As many as 97 per cent of the companies that declared earnings for the June quarter have failed to deliver margin expansion for four quarters now, according to data available on AceEquity.

Much of the shrinking of operating margins for listed companies has been a function of rising raw material costs — from hard commodities like base metals to soft commodities like crude palm

. Intermediate products have seen a tremendous rally since September 2020, aided by the disruption caused to supply chains across the world due to the Covid-19 pandemic.

“We see modest risks to earnings from lower-than-expected margins. The sharp increase in global commodity prices may pose downside risks to gross and EBITDA margins in several sectors,” said Kotak Institutional Equities in a recent note.

That said, there is an elite club of stocks that are defying these prevalent trends in corporate India right now. Around 3.2 per cent of the 1,216 listed companies on the National Stock Exchange that have reported their June quarter earnings have managed to defy the odds by expanding their operating margins on a sequential basis for four consecutive quarters.

Naturally, the list is dominated by companies that are intermediaries in the production process such as steel companies, textile companies, transportation companies and certain chemical companies. Curiously, though, the list is devoid of blue-chip companies, with the exception of usual suspects such as

, JSW Steel and Steel Authority of India. The rest of the list is dominated by smallcap and midcap stocks such as West , , Nahar Industrial, , and .

While these companies have managed to sustain consistent margin expansion over the past four quarters, there is a risk that the best part of the show is over. Global commodity prices have started to soften, especially for base metals and soft agricultural commodities.

Further, as supply-side issues ease with the waning of the pandemic, many of the extra costs associated with logistics may drive down prices of goods such as paper, spinning yarn and certain intermediate chemicals.