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Despite the de-rating in the overall market multiple, stock prices have moved in line with
consensus EPS revisions ytd as the stocks that have generally done well are the ones with
positive earnings revisions and vice versa. We highlight stocks with significant divergence
between stock prices and estimate revisions.
Stock prices have generally moved in line with consensus estimate revisions
As chart 1 shows, there is a moderate correlation (0.6) between the ytd change in the stock
price and the ytd average change in Bloomberg consensus net income estimates for the
current constituents of MSCI India (we have also included Bharti, Idea and Power Finance in
the analysis). For example, the top ten price performers in this universe have seen positive
estimate revisions of 7% while the bottom ten’s estimates have been revised down by 19%.
But there is significant divergence, too…
As chart 1 shows, price performance has diverged from estimate revisions in some
instances. We measure the difference between the actual ytd stock price performance and
predicted stock price performance using the linear regression equation: y = 0.68x – 9.7;
where y is predicted stock price performance and x is ytd average change in FY12 and FY13
Bloomberg net income consensus estimates.
… especially for wholesale funded financials, telecom and consumer stocks
As Table 1 shows, ytd price performance for wholesale funded financials and banks (Canara
Bank, IDFC, Rural Electrification & Power Finance) and Tata Motors has been much worse
than the decline in consensus earnings estimates. In contrast, the price performance of certain
telecom (Bharti and Idea Cellular) and consumer stocks (Hero Motocorp, Asian Paints, Titan,
Dabur, ITC and Bajaj Auto) suggests investors may have overpaid for earnings delivery relative to
the market.
Bullish markets and interest rate sensitive stocks
We continue to be buyers of Indian equities as valuations are now at a discount to historical
averages (12M forward P/E of c13x vs. historical average of c14.5x) and we believe interest rates
are close to peaking out (we expect only 25bp of further policy rate hikes from the RBI) as
inflationary pressures are moderating with a slowdown in domestic demand.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Despite the de-rating in the overall market multiple, stock prices have moved in line with
consensus EPS revisions ytd as the stocks that have generally done well are the ones with
positive earnings revisions and vice versa. We highlight stocks with significant divergence
between stock prices and estimate revisions.
Stock prices have generally moved in line with consensus estimate revisions
As chart 1 shows, there is a moderate correlation (0.6) between the ytd change in the stock
price and the ytd average change in Bloomberg consensus net income estimates for the
current constituents of MSCI India (we have also included Bharti, Idea and Power Finance in
the analysis). For example, the top ten price performers in this universe have seen positive
estimate revisions of 7% while the bottom ten’s estimates have been revised down by 19%.
But there is significant divergence, too…
As chart 1 shows, price performance has diverged from estimate revisions in some
instances. We measure the difference between the actual ytd stock price performance and
predicted stock price performance using the linear regression equation: y = 0.68x – 9.7;
where y is predicted stock price performance and x is ytd average change in FY12 and FY13
Bloomberg net income consensus estimates.
… especially for wholesale funded financials, telecom and consumer stocks
As Table 1 shows, ytd price performance for wholesale funded financials and banks (Canara
Bank, IDFC, Rural Electrification & Power Finance) and Tata Motors has been much worse
than the decline in consensus earnings estimates. In contrast, the price performance of certain
telecom (Bharti and Idea Cellular) and consumer stocks (Hero Motocorp, Asian Paints, Titan,
Dabur, ITC and Bajaj Auto) suggests investors may have overpaid for earnings delivery relative to
the market.
Bullish markets and interest rate sensitive stocks
We continue to be buyers of Indian equities as valuations are now at a discount to historical
averages (12M forward P/E of c13x vs. historical average of c14.5x) and we believe interest rates
are close to peaking out (we expect only 25bp of further policy rate hikes from the RBI) as
inflationary pressures are moderating with a slowdown in domestic demand.
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