India Equity Strategy 4Q FY13 Earnings Review: Muted Expectations Met : JPMorgan

 4Q earnings met muted expectations. Aggregate adjusted 4Q earnings growth
for the Sensex companies at 5% yoy was largely in line with our estimate of
4%. Ex the Energy sector, growth at 5% was higher than our estimate of 1%.
Sectoral trends were mixed. The breadth was evenly balanced. Consumer
Discretionary, Health Care and Materials reported better-than-expected
earnings. Telecom and Utilities lagged expectations. In Financials, private
sector banks fared well, while the SoE Banks disappointed. With this, aggregate
earnings growth for FY13 came in at 4%.
 Revenue growth at a cyclical low, margins stabilizing. Aggregate 4Q FY13
revenue for Sensex companies moderated to a three-year low of 7%. Sales
growth for cyclical sectors – Energy, Materials and Industrials – was relatively
weak. Exporters benefitted from a weaker INR. Profit margins improved
sequentially and are largely unchanged on a yoy basis. Lower commodity prices
helped margin improvement.
 Earnings expectations moderate. Since the start of the 4Q reporting season,
aggregate earnings estimates have been cut by 2.5% for FY14. Earnings
estimates are down for most sectors, except Health Care. The extent of earnings
cuts has been relatively higher in Materials, Industrials, IT Services and
Consumer Discretionary companies.
 Current Sensex earnings growth expectations of 14% for FY14 appear
optimistic to us. Growth is expected to be driven by Consumer Discretionary,
Financials and Materials. The current muddled macro and recent high frequency
data points are we believe not supportive of consensus expectations. Our macro
model suggests earnings growth of 10% for FY14E.
 Sector strategy. We are overweight IT Services, Energy, high-quality
financials, Government utilities and sin stocks.

�� -->