New Wage Bill Effect: These companies may see a recurring impact on their financials

Jefferies' note states that companies with higher India employee costs-to-profit before tax (PBT) ratio will be impacted more on a recurring basis.

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What is the story about?

Capital goods stocks such as BHEL, Afcons Infra Ltd., and Larsen & Toubro Ltd ., along with retail names like Jubilant Foodworks, Nykaa, and Eternal, along with select Pharma and Banking stocks are likely to be impacted due to the new labour law, brokerage firm Jefferies stated in a note on Monday, January 12.

Jefferies cited the Institute of Chartered Accountants of India (ICAI), in a notification, has mentioned that Indian companies will need to account for the new labour law starting the December quarter.

The note states that companies with higher India employee costs-to-profit before tax (PBT) ratio will be impacted more on a recurring basis.

As per the ICAI Frequently Asked Questions (FAQ), rules regarding "gratuity pay" and "leave encashment" are effective from November 21.

According to the Jefferies screener, assuming a 2% incremental wage cost impact, there will be 14 companies, that will have a 3% recurring impact on their financials.

Apart from the companies highlighted above, IT companies such as Coforge, Tech Mahindra, LTIMindtree, could also see an impact, according to Jefferies, who went on to add that some companies could see a one-time impact in the December quarter, but the market will most likely ignore the one-time impact.