Some food for thought
"We all need money, but there are degrees of
desperation."
—Anthony Burgess (English Novelist, 1917-1993)
Word for the day
Cozen (v)
To cheat, deceive, or trick.
First thought this morning
The whole country celebrated the IAF strikes on JeM targets.
People danced; distributed sweets; congratulated each other; saluted IAF; and
commended political leadership. A large number of retired army and air force
officers appeared on television and explained the strategic and diplomatic
importance of these strikes. The inboxes and timelines were inundated with
jingoistic jubilations.
I think we should conclude the celebrations fast and begin to
prepare for what may befall on us in next few years.
These strikes have changed the post 1971 Shimla agreement
paradigm of Indo-Pak engagement. It has erased all the pretense of normalcy and
cordiality in relationships. There might be only a negligible threat of full
blows war between the two nuclear powers. However, we shall certainly witness a
material rise in (a) engagement at borders; and (b) activities of mercenaries
backed by Pakistan Army.
Notwithstanding the farcical security check at shopping mall and
hotel entrances, the preparedness of civil defense, police force and citizens
in preventing and handling terror activities is abysmal. The private security
personnel are mostly farmers and construction labor in uniform. Most of the
guards who open car bonnets and trucks at malls and hotels have actually not
seen a weapon or bomb.
Soon we shall start a long season of election campaigns. Given
the current state of security apparatus, this would be an easy time for
mercenaries to carry out their nefarious designs.
I feel, the administration and forces should immediately draw a
plan to create awareness amongst people, train the civil defense personnel, and
mark all the easy targets. The most peaceful and unsuspecting areas should be
secured first, in my view.
Chart of the day
3QFY19 - Mixed bag
The result season for 3QFY19 has almost ended. The corporate
performance has been mixed for the quarter under consideration. However,
earnings have been downgraded across sectors and categories of companies for
4QFY19 well as FY20.
Based on reports of various brokerages, the key highlights of
the latest earnings season, could be listed as follows:
Nifty Earnings (Edelweiss Research)
● Nifty top-line
grew by 23% Y-o-Y in Q3 while bottom-line grew by 5% Y-o-Y.
● Financials were
the major drivers of earnings growth led by banks. However, NBFCs continued to
see weakness in growth.
● Oil Marketing
Companies (OMCs) were the main draggers of headline profitability on the back
of lower refining margins and inventory losses.
● Earnings were
impacted by high raw materials prices, INR depreciation, muted demand sentiment
and tight liquidity.
● Going ahead,
impact of low commodity prices including crude oil along with stabilisation of
rupee may support growth.
● Nifty FY19
diluted EPS from continued operations is expected to be 503
Consensus earning continues to be downgraded (IIFL Research)
Earnings downgrades have persisted through the 3Q reporting
season, as FY19 EPS for the Nifty Index has been downgraded by 5.7%. While
consensus estimates imply a modest single-digit EPS growth for FY19, FY20
growth is estimated to be more than 20%.
This is an extremely optimistic assumption and earning
downgrades are, therefore, likely to continue through FY20 too.
Aggregate BSE200 profit growth is estimated to grow ~27% YoY in
FY20, while aggregate BSE200 profits, excluding PSU banks and metal companies,
is expected to grow ~21% YoY. We believe these estimates are extremely
optimistic, given that the nominal GDP is expected to grow 11-12% YoY in FY20.
While earnings growth should improve in FY20, with lower PSU bank losses and
improvement in demand, earnings downgrade would continue in FY20 as well.
FMCG, IT and Infra reported strongest numbers, peak NPAs
behind (Various Brokerages)
While two infra companies’ PAT grew 32% yoy, on account of
strong operational performance (L&T on strong order inflows and execution and
Adani Ports on strong cargo volume and profile), PAT of FMCG and IT companies
grew 15-17% yoy, with a stable earnings profile.
FMCG particularly has seen higher support from rural markets
(compared to urban) as they reap benefit of overall stronger crop output in
last 2 years while urban markets deal with a high base owing to 7th CPC
pay-outs that is finally fully implemented.
With a) overall system Gross NPAs coming down by 70bp
sequentially in Sep 2018 and b) an uptick in corporate credit uptick (details
here), we see corporate banks benefitting. Consequently, in current earning
season, we have observed NPL recovery, stronger earnings outlook, expectations
of improvement of ROE, ROCE across three Nifty banks with strong corporate loan
book (ICICI, SBI and Axis Bank).
