Some food for thought
"The Haitian people are gentle and lovable except for their
enormous and unconscious cruelty."
—Zora Neale Hurston (American Dramatist, 1891-1960)
Word for the day
Pawky (adj)
Cunning; sly
First thought this morning
The Law Minister of India, and apparently a close confidant of
BJP leadership, inadvertently admitted three things on the floor of the
parliament:
(a) BJP is in a desperate
situation. In next 40-45days, before the code of conduct becomes applicable, it
may slog even more recklessly.
(b) BJP did not play
its 5yr inning in a planned manner. That is why it needs to slog in last couple
of months.
(c) BJP as a team is
overwhelmingly dependent on its captain. The captain planned and executed
Demonetization, as Finance Minister is on record denying any pre knowledge of
it. The captain conceived, authorized and monitored the Surgical Strike on
Pakistan. He himself indicated in his latest interview that the Defense
Minister may not have been kept in loop. Reports suggest that the Union Cabinet
and Law Minister might not have been consulted on the hurriedly drafted and
passed 10% Quota for Poor legislation.
To win 2019 elections, BJP needs 19 runs with 4 balls remaining.
They would need to hit at least three sixes. One dot ball, and its either a tie
or loss for BJP.
Chart of the day
Burden of expectations easing gradually
The earnings reports for 3QFY19 have started to trickle in. From
next week, the reporting will gather pace. After a long period, this would be
the first earnings seasons where the expectations are running really low.
The consensus is estimating single digit growth on both EBIDTA
and PAT. The estimates for FY19 and FY20 have moderated over past 3months. The
consensus estimates for NIFTY EPS now stand around Rs500-520 for FY19 and
640-660 for FY20. This implies 12-13% growth for the current year FY19, and
26-28% growth for FY20. It is likely that we may see further cuts in post the
3QFY19 results. I expect FY19 growth to be around 8% and FY20 Nifty growth to
moderate to 20-21%, implying an EPS of ~Rs575.
The burden of high expectations is thus lifting from the
market's shoulders gradually. With election results out of its way, markets
would feel much lighter and supple by the end of 1H2019, in my view.
Insofar as 3QFY19 is concerned, the consensus expects:
(a) The drivers of
earnings over past 4quarters, energy, metals and autos may take a break and
report poor performance. About one third of the companies may report profit
decline in the reporting quarter.
(b) Large IT may
continue to report decent growth. Overall sector growth to be in double digits.
(c) Corporate banks
may report a turnaround in both earnings and asset quality. Higher treasury
income may add to the other income. Lower NPA accretion and some write backs
should help asset quality and provision coverage. The biggest positive delta is
expected in private corporate banks, while PSU Banks are also expected to do
much better.
(d) NBFCs shall
report some margin contraction and poor credit growth. However, in aggregate
they may still report decent double digit earnings growth.
(e) Some sectors
like pharma and cement are expected to report decent yoy growth given the poor
base numbers.
(f) The key sector
to watch would be real estate. The market opinion is divided on this sector.
However, majority expects material expansion in operating performance.
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