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 Equity Market Outlook : DSP MFJun-15-2016 

Economic growth: After growing at 7.6% in FY2016, GDP growth is expected to further accelerate to 7.8% in FY2017. While the pace of economic reforms may have been slower than expected by market participants, we firmly believe that the steps taken by the government are in the right direction.


Earnings growth: Corporate profits (as a % of GDP) have declined to around 3.9% versus the ten year average of 5.4% and peak of around 8%. We expect corporate earnings to see a pick up in the second half of CY2016, led by domestic cyclicals and interest rate sensitive sectors. We believe earnings growth will average closer to 13-15% p.a. for FY2017.


Markets will benefit: A strong pick up in corporate earnings growth in FY2017, full transmission of lower interest rates and expanding return on equity (ROE) for corporate India makes us very optimistic about the outlook for Indian equities in the medium term.


About DSP BlackRock


DSP BlackRock Investment Managers, one of the premier asset management companies in India, offering investment products (including offshore advisory) across the risk-reward spectrum.


DSP BlackRock Investment Managers is a joint venture between the DSP Group and BlackRock Inc. The DSP Group is owned by Mr. Hemendra Kothari and has a track record of close to 150 years. BlackRock Inc. is one of the world’s pre-eminent asset management firms, managing assets of USD 4.65 trillion (as on Dec 31, 2015)


Source: Internal, Morgan Stanley, IIFL, Deutsche Bank, Citibank and Bloomberg as of Source: Internal, Morgan Stanley, Deutsche Bank, Citibank and Bloomberg as of 31 May, 2016. The views expressed are as of June 2016 and may change as subsequent conditions vary


Market Update


Equity Market


Markets witnessed upward trend in May with S&P BSE SENSEX ending the month up by ~4% in INR terms and ~3.1% in USD terms  Mid caps and small caps underperformed large caps by 1.2% and 3.0% respectively


Bankruptcy Bill


The much awaited Bankruptcy Bill was passed in the recently concluded session of the Parliament

The bill is aimed to fast track the insolvency proceedings and help the banks in containing their credit costs (NPLs)


Q4FY16 Earnings


Earnings and recent results delivered a positive surprise; S&P BSE SENSEX stocks’ revenues grew by 4.2% in FY16, whereas the EBITDA grew by 12.5% and PAT grew by 2.7% However, excluding Banks, PAT grew by 8% indicating that earnings growth is underway (banks have especially suffered this quarter due to large markdowns of NPAs)


GDP Growth


Indian GDP grew by 7.9% YoY in Q4FY16, and by 7.6% for FY16, which was better than expectations


Services and agriculture helped boost the GDP whereas capital goods sector continues to remains a drag


Domestic Macro


March IIP slipped to 0.1% vs 2% in February led by decline in manufacturing, especially capital goods


April CPI inched up sharply to 5.4% vs 4.8% in March led primarily by food prices; core CPI also inched up to 4.9%



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(October 25, 2016)

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