Monday, May 14, 2012
Q4FY12 earnings, up 3.0% YoY (Edelweiss expectation: -4.0%), have neither been prolific nor despairing. However, what casts a shadow of disappointment is that a part of this earnings beat may have been driven by higher other income, implying a weakening core outlook. Even if the balance earnings season were to be on track, earnings growth for our coverage universe would be 3.0-3.5% YoY, implying yet another sub-10% quarter. Topline grew 17.4% YoY, ahead of our 15.0% expectation but was largely driven by few companies only. EBITDA margins, meanwhile, continues to remain depressed and have contracted ~320bps YoY. Worryingly, the Sensex earnings trajectory, which had shown signs of bottoming out, has been downgraded 1.1% since March. Results surpass expectations, but on other income crutch For companies within our coverage universe which have declared results so far, YoY earnings growth came in at 3.0% (Edelweiss expectation: -4.0%). The disappointment is on the core earnings front as some part of the earnings surge may have been driven by higher other income (e.g. PSU banks, RIL and Maruti Suzuki). For companies that have declared results so far, we estimate that other income as a proportion of sales is at 2.7%, which is a multi-quarter high. Meanwhile, revenues came in above expectation at 17.4% of 15.0%, YoY, but was largely driven by few companies only. Margins continued to disappoint, contracting 320bps YoY. Even if balance earnings were to come in line, earnings growth for our coverage universe would be 3.0-3.5% YoY, implying a fifth consecutive quarter of sub-10% earnings growth. Our Q4FY12 projection is for 0.8% YoY earnings growth.
Prices register big weekly losses Precious metal futures fell on Friday, 11 May 2012 at Comex with recent strength in the U.S. dollar dragging prices lower. Gold prices finished off the day's low, however, as data showing that U.S. consumer sentiment hit its highest level in more than 4 years prompted the dollar to lose some of its safe-haven appeal and trade off session highs. Gold for June delivery shed $11.50, or 0.7%, to settle at $1,584 an ounce on the Comex division of the New York Mercantile Exchange, marking its lowest settlement level of the year. Prices had dropped as much as $23.50 to touch a low of $1,572 an ounce earlier Friday. They lost 3.7% for the week, marking their second weekly loss.
Prices end 2.4% lower for the week Crude-oil futures at Nymex declined on Friday, 11 May 2012 as weak data out of China and ongoing demand concerns combined to pull prices to their lowest settlement of the year. Recent strength in the U.S. dollar also dragged prices lower. Earlier, prices found some support from a bigger-than-expected increase in U.S. consumer sentiment. Light and sweet crude for June delivery fell 95 cents, or 1%, to settle at $96.13 a barrel in the New York Mercantile Exchange. For the week, futures prices finished 2.4% lower. In the currency market on Friday, the Dollar Index, which weighs the strength of dollar against basket of six other currencies rose by almost 0.2%.
Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 3.50 points at the opening bell. On the macro front, the annual rate of inflation based on the wholesale price index (WPI) is seen easing to 6.6% in April 2012, as per the median estimate of a poll of economists carried out by Capital Market. The annual rate of inflation, based on monthly WPI stood at 6.89% (provisional) for the month of March 2012. The government unveils inflation data for April 2012 today, 14 May 2012. Interest rate sensitive, auto, realty and auto stocks will be in focus ahead of inflation data. L&T announces FY 2012 results today, 14 May 2012. Key benchmark indices edged lower for the fourth straight session on Friday, 11 May 2012 after the latest data showed a surprise contraction in industrial production in March 2012. The BSE Sensex lost 127.07 points or 0.77% to settle at 16,292.98, its lowest level since 16 January 2012.
The Indian markets are likely to start on a flat note tracking mixed global cues. The inflation numbers for April 2011 will be eyed Headlines for the day: Mukesh Ambani gets fresh BofA shares. Central Bank says it needs over Rs14K cr for Basel III. RINL IPO likely to be launched on July 3. Fitch cuts JPMorgan credit rating to A-plus. Farmers seek 70% revenue-sharing with sugar mills. AI pilots' stir enters 5th day, 16 flights cancelled. Govt puts on hold raising FDI limit in insurance sector. Indian Indices: On the first day of the week, the Indian markets are likely to begin on a flat note tracking mixed global cues. SGX Nifty is trading marginally higher. Rangebound trend is what the markets have been following amid volatility. Today the markets may take cues from the April inflation numbers. The key indices may remain in a narrow range and continue to trade volatile. Investors will keep a close eye on shares of Adani Ports and Special Economic Zone, Adani Power, Alstom T&D India, Ashok Leyland, Eicher Motors, Havells India, Indraprastha Gas, JSW Steel, Larsen & Toubro, Manappuram Finance as the companies announce results today.
NTPC may not be able to add at least 12,500 MW of generation capacity, if the coal supply issues are not resolved in the next couple of months. (BL) Air India was forced to cancel nearly 30 international flights on Friday, after 400 pilots refused to return to work and the Supreme Court declined to intervene saying that it is an internal matter. (ET) Jaguar Land Rover will invest an additional GBP1bn in sourcing parts from the UK-based suppliers for its latest sports utility vehicle Range Rover Evoque over the next four years. (BS) SAIL plans to help Mongolia develop its iron ore and coal deposits. (BL) Welspun Group, the lone bidder for operating Vizhinjam Container Transshipment Terminal in Kerala, has agreed to lower its demand for a grant it had earlier sought from the state government to operate the terminal. (ET)
There is no end in sight to the ongoing selloff in the Indian equities at the moment, as the Government continues to dither on key reforms and the central bank is running out of options to shore up the markets. The outcome is deteriorating economic fundamentals, weak business environment, pressure on corporate earnings, FII outflows and further dent in India's credibility. Indian markets fell yet again on Friday, extending the losing streak to a fourth straight session and notching up losses for another week. The weakness in the Indian equities is continuation of the slowdown in momentum witnessed since the announcement of the Union Budget. The controversy surrounding GAAR provisions for FII investments through tax havens and the long-running tax dispute with Vodafone have prompted FIIs to take a cautious view of the Indian markets for the time being. Widening trade deficit and dwindling capital flows have sent the Rupee sliding as well. The gallant efforts by the RBI to support the local currency have not yielded the desired results either.
"The human mind can bear plenty of reality but not too much intermittent gloom." ~ Margaret Drabble. There is gloom all around and market players have turned wary of near-term prospects for risky assets such as equities. The IIP for March was dismal to say the least, once again calling into question the reliability of the data. Hopefully the Centre will soon address the issue of wild gyrations in important economic statistics. The start today is likely to be subdued as investors await the release of April inflation numbers. Headline WPI is likely to have cooled a wee bit, but the RBI is unlikely to get swayed by it due to high fiscal deficit and suppressed inflation in fuel and fertilizer.
A combination of domestic and overseas headwinds continues to play havoc with the markets’ sentiment. The postponement of GAAR implementation by a year did manage to perk up the mood on Monday. But, that was perhaps too little, too late. The RBI’s latest attempt to put a floor under the sliding rupee also failed to work its magic. To add to the misery, the IIP data for March turned out to be another shocker and the eurozone plunged into political turmoil. The key indices continue to be under pressure as buyers are reluctant to stick their neck out just yet. Investors will return only if the Government bites the bullet on reforms. The global backdrop too should improve simultaneously. However, given the experience of the past several months any material progress on either of the two looks difficult, at least immediately. The markets could remain weak for a while before we see any sign of turnaround. The environment remains risky, so avoid undue adventures. Wait and watch is the right strategy to tide over the current turbulence.