IGI Logo

OUTLOOK

SECOND WAVE OF COVID-19 — EARNINGS EXPECTATIONS

* Due to restrictions on Service Sector, earnings in Q1 FY22 will be impacted

* Earnings for FY22 have inherent support despite the impact of Q1 FY22-

* Corporates and consumers are much better prepared this time compared to the first wave

* Banking sector is adequately capitalized and provided for in terms of any stress

* There are multiple earning drivers across export-oriented sectors, global as well as domestic cyclicals

PORTFOLIO STRATEGY*

* Balanced portfolio strategy to capitalise on the various pockets of strong earnings recovery and outlook

* For the first time in many years that we have multiple drivers of earnings cutting across IT, Pharma, Financials (ROE normalisation), commodities and real estate with some green shoots visible in the capex cycle as well

* Though defensive weights in our funds have gone up over time, all our funds are currently positioned for economic recovery

* Our investment strategy has usually been pro cyclical and counts on earnings surprise

INDIA: NEW PHASE OF ECONOMIC GROWTH BECKONS

The government’s cautious approach in providing explicit fiscal support (contained at c1.5% of GDP) is now coming in handy as the relatively stable macro variables (current account deficit, fiscal deficit, INR/USD) has helped attract its due share of portfolio inflows.

The initial sharp cut in corporate earnings FY22 forecast of 15-20% for BSE 200 has been followed up by almost a 10% upgrade from the bottom

The eventual FY22 earnings estimate may not look too different from the pre-Covid forecasts. This has been a result of multiple factors

▪ certain sectors like IT services, Pharma and Telecom have gained from the emerging tailwinds post-Covid.

▪ cost declines has been the key reason for the disconnect between the positive EBIT growth of 15-17% in BSE 200 companies for Sep-quarter as against GDP decline of 7.5%.

▪ lower-than-expected bad debt provisions in Banks and NBFCs.

ORGANISED VS UNORGANISED

* the top corporates in the listed universe have coped with and bounced back from the pandemic much better than the unorganised/informal sectors with the help of market share gains and cost cuts.

* the informal sector has been at the receiving end for last 3 years with demonetisation, GST implementation, NBFC crisis and now Covid.

* It is here that the concern for the GDP growth arises as informal sector accounts for bulk of the employment and a prolonged slowdown there would eventually impact consumption (60% of GDP in 2019) and economic growth eventually.

FROM THE CIO’s DESK – APRIL’21

Examples of Self-belief​​​​​​​

In the last twelve months, there have been a lot of parallels with the “Self-Belief” theme in the equity markets and away from it, on the domestic and global front and lastly on the cricket pitch.

1. Corporate earnings benefited from collective self-belief

2. Sharp pivot in Government Policy

3. Corporate strategies on the mend

4. IT services – right place right time 5. India’s opportunity in the global manufacturing 6. Healthcare and Vaccine breakthroughs:

Even as markets factor the above, the strong second wave of Covid means that following the basic safety protocols is a must and that is one area where too much self-confidence can end up doing more harm than good!

The past was lived thorough with hope and self-belief, while the coming year will be about persistence and self-belief. Well begun is half done and the other half needs a more determined sheen to the fibre of self-belief.

To Read Complete Report & Disclaimer Click Here

Above views are of the author and not of the website kindly read disclaimer