India Equity Strategy: Show me the earnings:: Deutsche bank,

Show me the earnings is the motto for 'reluctantly bullish' investors
We believe that the dynamic interplay of weak macro fundamentals on the one
hand coupled with central bank injections of liquidity at regular intervals has
compelled investors to become 'reluctantly bullish". As our Asia equity
strategist Ajay Kapur says "Show me the earnings" is the motto for markets in
the current environment. We believe that earnings and quality balance sheets
will become the key factors for markets, more than ever before. In the peculiar
environment we are in currently, investors may need to shed long-held dogmas
on valuations. We expect companies and sectors—particularly with a shrinking
investible universe—seen displaying sustainable earnings momentum will see
valuations continue to expand, in many cases, beyond recent historical highs.
The premium for earnings predictability will only get richer, in our view.

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India has seen shallowest EPS revision cycle YTD
While India has been held hostage to its own domestically driven macro
challenges, on a relative basis, the country stands out among its BRIC peers,
having seen the shallowest downward revision to consensus earnings. CYTD
we have seen consensus EPS estimates for MSCI India revised downwards
only by 2% relative to 15% and 5% for MSCI Brazil and MSCI China
respectively. In addition, in recent months, the velocity of the downward
revision has accelerated for countries like Brazil, China and Korea, whereas
earnings for MSCI India have stayed stable. Only Russia has witnessed positive
earnings revision in July 2012.
Earnings for Banks, FMCG and IT services revised upwards, telecom, metals
and oil and gas see downward revisions
The FMCG sector stands out for its consistently positive earnings revision
(FY13 earnings revised upwards by 5% last year and 2.5% YTD), followed by
banks (FY13 earnings revised upwards by 0.3% and 6% YTD). Within the
banks, public sector banks have borne the brunt of earnings cuts, while private
sector banks have seen positive revisions. Telecom has witnessed sharp
earnings cuts due to stagnant tariffs and weaker-than-expected data business.
We continue to stay tactically bullish
As per DB’s US economist Joseph LaVorgna “…policymakers have a clear
easing bias in place and likely feel the need to act on it in some fashion
relatively soon”. Consequently, the combination of global liquidity and return
of flows to emerging markets, should drive Indian equities higher. However,
for a more sustainable rally the policy environment in India will need to
improve considerably. While coalition dynamics continues to play spoilsport,
fears of a sovereign rating downgrade may compel government to move ahead
on politically contentious issues—FDI in multi-brand retail, fuel price
rationalization, etc. Recent developments such as conditional approval to RIL
for KG-D6 spending budgets after a long hiatus suggest the government is
trying to reach out to India Inc. We expect more such decisions.
Overweight private sector banks and select consumer/industrial names
We recommend investors overweight private sector banks and NBFCs (an
expected decline in wholesale funding rate), select consumer discretionary and
staples names and IT Services. Unless the visibility over China improves, the
potency of a QE-fuelled commodity rally will be subdued. Top Picks: Axis Bank
(raise o-wt to 100bps vs. 60bps earlier), TCS (110bps vs. 70bps), L&T,
Cummins, M&M, Bajaj Auto, ITC.