"How quick come the reasons
for approving what we like!"
—Jane Austen
(British, 1775-1817)
(British, 1775-1817)
Word for the day
Otiose (adj)
Being at leisure; idle;
indolent.
(Source: Dictionary.com)
Malice towards
none
Many seem to be implying that if you had chosen not to protest in 1975,
1984, 2002, 2013 - you have seized your right to protest!
Someone remind them that Lord Krishna acted only when Shishupal abused
him for 101st time.
Reign your temptations
The current result season has expectedly started on a low note.
Industry leaders like TCS, HUL and ZEE have posted results which were below
even moderate expectations. More importantly, the managements of these
companies are not sounding particularly optimistic about the prospects in near
future.
The management of HUL has categorically confirmed many trends that
I have been highlighting from time to time (see
here). For example:
(b) Rural demand has
moderated and outlook remains uncertain in view of multiple constraints - lower
farm income, slower wage rate growth, moderate growth in government's social
sector spending and lower remittances from laborers migrated to urban centers.
(Also see
here)
(c) Only a part of the
lower commodity prices is reflecting in the bottom line of corporates. The raw
material advantage is obliterated by higher advertisement and marketing spend
(A&M), larger discounts and rising wage cost etc. The pricing power has
diminished considerably and competition intensified.
It is interesting to note that the higher A&M spend of
consumer companies is reflected in ZEE's results (37% growth in advertizing
revenue). But poor subscription growth has normalized this advantage.
On the global market side, both Infosys and TCS have highlighted
muted near term outlook on moderate demand growth, persistent pricing pressure
and rising costs. HCL Tech has also guided short term caution in near term.
(See here
and here).
On domestic investment demand front, the recent guidance from the
management of L&T is noteworthy. (see
here)
All this leads me to believe that we may see material downward
revision in current earnings estimates once the current result season is over.
Currently, the consensus FY17e Sensex earnings estimates are
around Rs1850 (down from Rs. 2050 in April 2015). Thus, at 27k Sensex is
trading 14.6x FY17 earnings, close to its long term average of 15.5x one year
forward multiple.
In my view, these earnings estimates may come down by another
5-8%, led by IT, industrials and consumers. In which case, the upside potential
in next 12months, from the current levels, will be further moderated to 6-8%.
I am tempted to believe that the current India enthusiasm amongst
foreign investors may sustain in 2016 also, leading to re-rating of Indian
markets to higher multiples.
But finding ideas to execute my temptations will be a tough ask.
All I want is already expensive. All that I do not want at current prices, I
will not buy at 10% higher prices, no matter what.
My trader friends are suggesting buying November Nifty straddle
for Bihar election results. I am not too inclined, but will take a call once my
team comes back from Bihar post Dussehra holidays.
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