Women lie, Men lie, Numbers don’t lie ::Macquarie Research,

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Women lie, Men lie, Numbers don’t lie
Event
 In this week’s note, we focus on the upcoming result season. In our view,
consensus estimates still appear high. Based on our 2QFY12 estimates,
Sensex based companies will achieve only 43% of the consensus full year
estimate, against historical average of 47%. FY12 consensus estimate for
Sensex eps has moved down to 1186, but there could be 4-5% further
downside from here on. More cuts should come for FY13E as market is still
expecting a “V” shaped recovery and forecasting 16% growth on a higher
forecasted base of FY12.
 Among sectors, we shall look to book profits in cement, two wheelers and
consumer staples on optically strong results. While we will look to add
telecom (read Bharti only), pharma and four wheelers on weak results.
 To play the results, stocks with weak results should be DLF, Wipro, JSW
Energy and JPA.
What caught our eye?
 Emerging markets bearing the brunt: Indian indices were down 4-5% as of
Oct 5 (however, going into publication, markets have bounced back sharply in
line with other regions). Amongst sectors, the market’s tone continued to be
defensive as IT, healthcare and FMCG were the least hit while banks, metals
and real estate were the worst hit. Our top-10 list outperformed MSCI India
primarily on BPCL (+4.7%) while the worst performer was JSPL (-14%); the
top-10 list has outperformed MSCI by 760bps since Aug 2010.
 FDI in FY12 to show only a mild recovery: Our economist, Tanvee Gupta
Jain, expects FDI inflows to increase to a modest US$24 billion in FY12
(including US$14.5 billion during April-July and US$5 billion from the BP-RIL
deal) from US$19.4 billion in an FY11 plagued by global uncertainty and weak
policy efforts on the part of the government to revive investments. (Link)
 Sovereign rating concerns: After the weak Central government finances
data announced on Friday and higher govt borrowing than budgeted for
2HFY12, rating agencies including S&P and Fitch flagged concerns that
deterioration in Indian government finances may “weigh” on its rating. (Link)
 Gujarat continues to attract investments: Automakers Ford and Peugeot
are planning to spend US$2bn to build new plants following the state’s
business-friendly policies. (Link)
 First cheapest car, now cheapest tablet: The Indian government launched
Aakash, the world’s cheapest tablet PC for US$46, under its Mission on
Education through Information and Communication Technology. (Link)
Outlook
 Get ready for up ride but it is lower tops and lower bottoms: Markets will
likely bounce back post a sharp correction, but the roller-coaster ride will likely
continue. Globally, European issue will likely remain in limbo till the meeting
on 4th Nov. and thus domestic issues will take centre stage. Results start on
12th with Infosys reporting, and all eyes will be on RBI meeting scheduled for
25th Oct. Not expecting much positives, hence selling on rallies
recommended.