Nifty99000 100%

Sensex99000 100%

Article rating: 4.3
Article rating: No rating
Article rating: 2.0
Article rating: 1.5
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: 4.0
Article rating: No rating
RSS

News

After triple whammy, earnings to bring relief

Author: Kumar Shankar Roy/Wednesday, June 6, 2018/Categories: Corporate, Expert View

After triple whammy, earnings to bring relief

Corporate earnings are accelerating, which holds a new ray of hope for Indian equity markets reeling under the triple weight of depreciating rupee, rising oil prices, and stiff valuations. Even as political developments keep equity investors on the edge amid rising volatility, investors should not take their eyes off earnings. Sales and profits are known to drive stock prices over the long-term. With the incremental growth in earnings, finally, the long-term domestic investor might be getting some relief.

As many are aware, the GST, the demonetisation event, and the implementation of RERA have been one-off events in the past 18 months which has made the overall corporate environment challenging. Besides, the weak investment and credit cycle and the recent surge in commodity prices especially oil too have held back system growth. As we move over some of these issues and as India integrates more tightly into the global growth cycle, many expected more uniform corporate earnings recovery.

Earnings for the universe of 290 companies quarter to date are up 13.3 per cent year-on-year, excluding PSU banks, ICICI Bank, Axis Bank and Tata Steel. Large cap and mid cap companies lead the profit charge even as small caps struggle. Sectors like real estate, healthcare and industrials have done well so far in Q4, while telecom and PSU banking have disappointed. The economy remains healthy, earnings are coming through and structural reforms are underway. This might set the stage for the third leg of private investment to come forward.

However, significant damage has been inflicted on equities in the past few months, particularly mid and small caps. This makes equities look better positioned today, than they have for some time now. It is important to view corporate in this prism. The earnings so far for corporates have come through recently with the majority (more than 50 per cent) either beating or delivering results in line with consensus estimates. Interestingly, the dispersion in long-term earnings expectations between large and mid-caps is marked. 

Going forward, while mid-caps are expected to outperform on an absolute basis, the consensus now expects a significant improvement in earnings for large-caps vs. a deceleration in mid-caps. The P/E for small caps is 31.2 times, while mid caps are at 23.2 times and large caps are 22.2 times. Good corporate earnings numbers have been the only positive factor in the bunch of negative news including Italy crisis. 

While the outcome of the RBI monetary policy, macroeconomic data, fuel prices and global market trends will dictate the momentum next week, investors can take heart from encouraging earnings growth numbers and can take bets accordingly. There has been limited communication from the central bank since the April policy meeting. This makes the policy review on June 6 important to gauge the RBI’s assessment of recent market volatility and hardening in borrowing costs. But if the 7.7 per cent growth in Q4 GDP and latest quarterly earnings scorecard are any indicators, the RBI could very well assume that the economy is slowly crawling out of the pit.

Print Rate this article:
No rating

Number of views (436)/Comments (0)

Kumar Shankar Roy
Kumar Shankar  Roy

Kumar Shankar Roy

Other posts by Kumar Shankar Roy
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free