Quarterly Earnings Preview - Q2FY12 ::Unicon

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Unicon Quarterly Earnings Preview - Q2FY12

Indian market continued to face challenges and the markets fell by more than 12% in the quarter ended September 2011 which was one of the highest fall after October –December quarter 2008. This was contributed majorly by global headwinds in terms of downgrading of US sovereign debt and Euro crisis leading to large scale FII outflow. Lack of strong leadership in Europe and the politics in Washington are further denting the investor confidence in the region. Greece is on the verge of default and the steps taken by the Euro zone nations to bail it out have not worked. Greece has a debt of close to USD 400 bn and now has a debt greater than its GDP.

In addition to this the domestic economy also registered a slower growth of 7.7% in Q1FY12 vs 9.3 in Q1FY11 & Industrial production fell by 3.3% in July 11. On the political front, last quarter saw major anti-corruption movement taking a front seat along with unfolding of major scams, which affected the political stability in the country. Lack of reforms in the country was also one of the main reasons for slower growth. Another major challenge for the economy has been the elevated levels of inflation. High inflation has been putting pressure on RBI to take anti inflationary measures (increasing the interest rates) at the cost of economic growth. Investments in industries and credit growth thus been hampered in this high interest rate regime.

Going forward, we expect certain solutions by the world governments, international agencies to control global economic crisis. Debt reduction plans of the Obama administration & future plans of the FED could be decisive in engaging confidence of the global investors. Rebalancing of global currencies and EU’ decision on Euro bonds along with other cooperative measures would lay the foundation for stable global fundamentals. The slower global growth will drag down the commodity prices going ahead. This will help the domestic inflation to taper down from current high levels. On domestic front we expect the government continue to take corrective actions on a) high inflation, b) high fiscal deficit, c) erratic FII flows d) changes in the FDI policy.

Redressal of these issues will provide much needed stability to economic growth. We believe, the rural economy would continue to remain robust on the back of good monsoon in 2011 supporting the consumption led demand. Thus, we expect the Indian economy to register growth of 7.5% in 2011-12.

We believe that cooling of commodity prices and strengthening of the US dollar could be the driving factors for Indian markets. The markets would continue to be range bound till the global concerns are addressed properly & domestic economy stabilizes. The last quarter of FY 12 would give a clearer picture wherein the corporate earnings should improve with lower raw material prices. Thereafter the rerating would lead to expansion of P/Es on selective basis. In the short term till uncertainty prevails sectors like FMCG, IT and Agri should outperform the index but for medium to long term one should start accumulating interest sensitive’s like Banks, Infrastructure and automobiles. 

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Unicon Wealth Research