Macro & Markets - December chill sets in ::Edelweiss,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Though incoming US macro data has been better than expected, hinting at a stronger Q4 GDP, it is too early to conclude that the US economy in 2012 will do distinctly better than 2011. Domestically, rapid decline in agri-inflation along with moderating core inflation will pave the way for monetary easing by RBI sooner than later. Meanwhile, Sensex recorded its first ever December decline in over a decade with defensive-cyclical divide clearly visible. The earnings profile continues to weaken with Q3FY12 coverage universe (ex-OMC) earnings expected to grow a paltry 2.1% YoY, the fourth consecutive quarter of sub-10% growth.

US economy: Finding its feet, but not yet on terra firma

Recent US economic data has been better than expected (non-farm payrolls, retail sales, ISM surveys etc.,) and definitely indicates stronger Q4 GDP growth compared to previous quarters. Yet, it may still be too early to conclude that the economy will make rapid strides in 2012. Households are still overleveraged, income growth remains subdued and duration of unemployment is at record high. Moreover, the external environment has deteriorated considerably. Indeed, leading indicators like ECRI are pointing towards weakness ahead.

Food for thought: Agri inflation plunges

Food inflation turned negative (-3.4% YoY) for week ending December 24 on account of fall in vegetable prices and high base effect. Meanwhile, non-food articles’ inflation also declined considerably reflecting high base effect and fall in cotton prices. Accordingly, primary articles’ inflation declined sharply and given its weight (20.12% in WPI) this will significantly impact monthly inflation number which we expect to be ~7.2-7.4% in December, down from ~9.1% in November.

Current account deficit: Widens on high gold, oil imports

Current Account Deficit (CAD) widened to 3.7% of GDP in Q2FY12 against ~3.5% of GDP in Q1FY12, due to rise in imports of oil and gold. On capital account, net inflows were just enough to fund the CAD with primary support from debt-related flows. Going ahead, REER depreciation, slower non-oil imports and stronger NRI remittances should help trim CAD, although capital flows outlook has also weakened in recent months.

December dip: Worst in a decade; earnings trajectory also slumps

Markets plunged in December, first in over 15 years, recording its second worst yearly returns ever. Defensive-cyclical divide was clearly visible amidst heightened risk aversion globally. The generally weak macro-outlook has contributed to the sharp downgrade in earnings trajectory with FY12 and FY13 earnings downgraded by 10-12% since April 2011.  Further, we expect earnings growth in Q3FY12 to remain tepid with 2.1% earnings growth YoY for Edelweiss coverage universe (ex-OMCs), the fourth consecutive quarter of slow growth.