By Vinod V Nair
Of the Nifty-50 stocks about 28 have given results. If we look broadly about the expectation on these 28 stocks, PAT was anticipated to grow by 8% on a YoY basis. However, the real PAT growth was only 1%. Still we consider the results good, because 50% of the results are above expectations while bad results are of those companies for which expectations were already low, thus this is not impacting the investor’s outlook. The true picture will emerge over the next 2weeks, which is looking better since analysts are expected to marginally increase the forecast especially looking towards FY19.
The good performing sectors were Finance, Chemicals, Cement and Metals. Whereas neutral performers were Auto, FMCG and Oil & Gas, the poor performers are Power, Telecom, Pharma and IT. Amongst the good performers, the most surprising factor was good set of numbers from banks while the supportive announcement by government with recapitalization and infrastructure spending provided an edge to PSUBs and infrastructure stocks.
Market seems to have largely factored the intermediary dip in earnings as seen in the bad results of Q1 and some recovery being seen in the ongoing Q2 results. Market is discounting the earnings growth of FY18 and looking beyond to FY19 given spending plan, ease from GST disruption & its benefit to organized sector and supportive global trend. Every dip is being used as an opportunity, every week we reach to a new high with no signs of fatigue. Valuation is following the price on account of prospects on domestic macros with signs of recovery in corporate earnings supporting the outlook.
At the same time profit booking is seen in expensive stocks and sector while value buying is visible in PSUBs, pharma stocks, energy, capital goods and metals as they are attractively available based on 5yr valuation band, given the upward future outlook on these sectors. Mid & small cap remained on a buying spree in expectation of relief packages for MSME and some items taxed at 28% in the next GST councils agenda. Auto stocks outperformed ahead the October sales data which is likely to be good due to festival demand. FIIs have turned as net buyers since the Govt announcement on Bharatmala and Recapitalization, foreign investors believed that NPA problem was one of the important reason for low private capital investment and low earnings growth in India.
On the global front, market participants are staying conservative due to two days FOMC meeting which have ended yesterday. But no change in rate tally is likely to support the global market in the future. Over the last 1-2years the tone of US FED policy has been so comprehensible led by Yellen (chairman), that market is largely secured about the central policy outlook and intensions over the next medium to long-term. It is so fixed in the market eye that FED rate will increase by one more time by Dec-2017 and three more times during CY2018, whomsoever be the next FED head, which is likely to change by Jan-2018.