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India Equity Strategy
2QFY11 Earnings Tracker 1: Mixed, Muted
In line so far, but a little muted —2QFY11 is expected to be a strong quarter (Citi
est at 40% yoy, Sensex – ex-oil): so far, the numbers are within striking distance
of expectations, though a little muted, a little mixed. Sensex earnings growth
(10/30) stands at 8.1% (vs. 11.3% exp), broader Citi universe (56/124) stands at
9.7% (vs. 15.1% exp), with 25/12 downside/upside surprises. While the bulk of
earnings are not yet in, the quarter has surprised with the number of surprises
and wide divergences within sectors; although management commentary has
generally remained fairly positive / consistent. It’s still early days, large
‘swing/foreign’ earnings not yet out, but will it be the ‘Diwali/Festive Quarter’ the
strong market appears to have anticipated?
Sales stronger than modest margins — It is more of a sales show (22.4% vs. 19%
exp); reflective of demand momentum, capacity support and anecdotal backing.
Margins are a more modest show; falling moderately YoY and QoQ, though this
more broad-based in a few sectors (domestics – Cement/consumers). As of now,
demand scores over profitability.
Pharma leads, Banks and IT are mixed, and Cement/consumers lag — Pharma is
clearly on a roll – strong, broad-based growth in spite of adverse currency trends.
Banks and IT are generally robust: a few really strong results, shadowed by a few
‘against the grain’ disappointments. The domestic’s raise some concern; Cement
worse than the bad that was expected, with a few weak Consumer results denting
aggregates, and some confidence.
Only 1/3rd of the way, so still a long way to go — It’s early days and decisive
results/declarations still lie ahead. However, the market has run, expectations are
high, and while aggregates remain well within striking distance, there is a little
catching up to do. Will earnings stay on track, or crack?
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