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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eye on India
Facts over feelings
Event
ƒ In uncertain markets such as what we have now, emotions often gain
influence on investors’ decisions. We are thus reminded of the famous quote
from Mark Twain: “Get your facts first, then you can distort them as you
please”. This week, we look at the recently completed earnings season and
see what the numbers have to tell us.
ƒ In 1Q FY12, Sensex companies reported 20% of Macq analysts’ full-year
estimates, while the five-year average is upwards of 23%. 2Q doesn’t look
any better and hence we would think there is more downside, though we
have already seen FY12E EPS down from Rs1,270 to Rs1,200 in the last six
months. Overall across our coverage universe, PAT growth came in at just
9% YoY, missing our estimate by 6%, while margins saw a 100bp drop. While
most sectors were under pressure, we see some bright spots with earnings
upgrades and potential to outperform – BPCL, GNP, ITC, SUNP and TCS.
Impact
ƒ Markets bearing the brunt of global weakness: The Indian market fell by
more than 4% in the past week, underperforming developed markets by
130bp and EMs by 470bp. IT continued to bear the brunt of global macro
worries (-7.7%) while FMCG was the best-performing sector (0.8%). FIIs were
net sellers with net outflows of –US$205m (YTD US$775m), while MFs were
net buyers of US$48m worth of equities (YTD US$1.2bn). Our Top-10 stocks
did better than MSCI India by 70bp; YTD they continue to outperform MSCI
India by 520bp.
ƒ Core inflation picks up further but RBI may tone down its aggressive
stance: WPI inflation for July came in at 9.22% while RBI’s measure of core
inflation accelerated to 7.5% YoY, remaining above 7% for the 6th consecutive
month. Our economist, Tanvee Gupta Jain, believes that while RBI will
continue on its anti-inflationary stance, adverse global environment suggests
that it might become less aggressive than what she had been expecting.
ƒ S&P sees no immediate threat to India sovereign rating; but risks are to
the downside: S&P indicated that India's sovereign debt rating of BBB may
not be downgraded immediately but loose fiscal policy and no action on
economic reforms could have implications in the medium term.
ƒ Govt losing the plot in the Lokpal issue; delaying other reforms: Anna
Hazare clearly has the government in a firm grip; with the entire country
putting its weight behind him, the government needs to rethink its strategy as
other important economic issues are taking a backseat. In the current global
weak environment, positive domestic macro could act as a key catalyst for the
market, in our view.
Outlook
ƒ Missing catalysts will seek new bottom: While markets are looking
oversold, confidence levels remain extremely low. This may be a sign of a
near bottoming, but investors seem to be in a dilemma – whether to buy costly
defensives or bottomless beta – resulting in inaction. Most companies
reported little institutional activity but stocks are still down 8-10% WoW.
Clearly, retail investors are panicking and selling. We would recommend
holding on to your defensives for another 5–10% potential dip in market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eye on India
Facts over feelings
Event
ƒ In uncertain markets such as what we have now, emotions often gain
influence on investors’ decisions. We are thus reminded of the famous quote
from Mark Twain: “Get your facts first, then you can distort them as you
please”. This week, we look at the recently completed earnings season and
see what the numbers have to tell us.
ƒ In 1Q FY12, Sensex companies reported 20% of Macq analysts’ full-year
estimates, while the five-year average is upwards of 23%. 2Q doesn’t look
any better and hence we would think there is more downside, though we
have already seen FY12E EPS down from Rs1,270 to Rs1,200 in the last six
months. Overall across our coverage universe, PAT growth came in at just
9% YoY, missing our estimate by 6%, while margins saw a 100bp drop. While
most sectors were under pressure, we see some bright spots with earnings
upgrades and potential to outperform – BPCL, GNP, ITC, SUNP and TCS.
Impact
ƒ Markets bearing the brunt of global weakness: The Indian market fell by
more than 4% in the past week, underperforming developed markets by
130bp and EMs by 470bp. IT continued to bear the brunt of global macro
worries (-7.7%) while FMCG was the best-performing sector (0.8%). FIIs were
net sellers with net outflows of –US$205m (YTD US$775m), while MFs were
net buyers of US$48m worth of equities (YTD US$1.2bn). Our Top-10 stocks
did better than MSCI India by 70bp; YTD they continue to outperform MSCI
India by 520bp.
ƒ Core inflation picks up further but RBI may tone down its aggressive
stance: WPI inflation for July came in at 9.22% while RBI’s measure of core
inflation accelerated to 7.5% YoY, remaining above 7% for the 6th consecutive
month. Our economist, Tanvee Gupta Jain, believes that while RBI will
continue on its anti-inflationary stance, adverse global environment suggests
that it might become less aggressive than what she had been expecting.
ƒ S&P sees no immediate threat to India sovereign rating; but risks are to
the downside: S&P indicated that India's sovereign debt rating of BBB may
not be downgraded immediately but loose fiscal policy and no action on
economic reforms could have implications in the medium term.
ƒ Govt losing the plot in the Lokpal issue; delaying other reforms: Anna
Hazare clearly has the government in a firm grip; with the entire country
putting its weight behind him, the government needs to rethink its strategy as
other important economic issues are taking a backseat. In the current global
weak environment, positive domestic macro could act as a key catalyst for the
market, in our view.
Outlook
ƒ Missing catalysts will seek new bottom: While markets are looking
oversold, confidence levels remain extremely low. This may be a sign of a
near bottoming, but investors seem to be in a dilemma – whether to buy costly
defensives or bottomless beta – resulting in inaction. Most companies
reported little institutional activity but stocks are still down 8-10% WoW.
Clearly, retail investors are panicking and selling. We would recommend
holding on to your defensives for another 5–10% potential dip in market.
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