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Sep 07, 2012, 03.42 PM IST
Angel Broking has come out with its earnings snapshot for Q1 FY2013. According to the research firm, the Sensex EPS is expected to improve at a CAGR of 9.4% over FY2012-14E. The outlook for economic growth improving in FY2014 rests on catalysts such as easing inflation and interest rates, corrective fiscal consolidation measures.
Angel Broking has come out with its earnings snapshot for Q1 FY2013. According to the research firm, the Sensex EPS is expected to improve at a CAGR of 9.4% over FY2012-14E. The outlook for economic growth improving in FY2014 rests on catalysts such as easing inflation and interest rates, corrective fiscal consolidation measures and pick-up in investment activity along with a thrust on reforms in the mining and power sector.
Markets largely driven by global factors; domestic economic fundamentals remain subdued
"Sensex companies reported a 15.5% growth in earnings during 1QFY2013 as against our estimate of 12.2%. Even our coverage companies recorded an earnings growth of 16.1% vis-à-vis our estimate of 11.4%. The better than expected earnings performance can largely be attributed to the surprise earnings growth for oil & gas companies as against our estimate of an earnings decline. Ex-oil & gas, Sensex companies reported an earnings growth of 17.8%, in line with our estimate of 18%, while our coverage companies witnessed an earnings growth of 17.9% compared to our estimate of 15.6%. Excluding State Bank of India (SBI), Sensex companies reported an earnings growth of 10.8% as against our estimate of 7.7%, while our coverage companies reported an earnings growth of 13.2% compared to our estimate of 8.5%.
Continuing the trend witnessed in the past few quarters, stubborn inflation and slowing growth resulted in continued pressures on the OPM during 1QFY2013 as well. Amidst contracting margins, a robust growth in revenues largely aided earnings performance (in some cases like Larsen & Toubro [L&T] and Bharat Heavy Electricals Ltd [BHEL] earnings were partly aided by extraordinary/non operating items).
Markets largely driven by global liquidity; domestic economic fundamentals remain subdued
The Indian markets continued to take positive cues from global events in spite of the weak domestic economic and political environment. Markets extended their gains in the month of August 2012 driven by expectations of an increase in global liquidity flows. The liquidity-driven rally has led to risk-on trade in Indian markets. Net equity inflows through Foreign Institutional Investments (FIIs) in the month of July soared to a five-month high of US$2bn after slowing down considerably since February. Buoyancy of FII investments can be largely attributed to 1) the European Central Bank (ECB)'s indication that it would purchase bonds to support the fragile Eurozone economy and 2) increasing expectations of a third-round of quantitative easing (QE3) measures by the US Federal Reserve in its September 2012 monetary policy meeting.
Outlook and valuation: Concerns over slowing growth and high level of inflation in the economy are expected to persist in the near term. We believe that the high interest rate environment and sluggish growth in capex activity will continue to affect stocks in cyclical sectors. Hence, we maintain a stock-specific and value-buying approach to yield better returns. The outlook for economic growth improving in FY2014 rests on catalysts such as easing inflation and interest rates, corrective fiscal consolidation measures and pick-up in investment activity along with a thrust on reforms in the mining and power sector. We prefer private banks and select infrastructure and real estate stocks amongst rate-sensitives and also quality stocks in export-oriented sectors like IT. Our top picks also include select mid-cap and reasonably valued defensive stocks. We expect the Sensex EPS to improve at a CAGR of 9.4% over FY2012-14E. We arrive at our 12 months Sensex target of 19,000, working with a conservative multiple of 14x FY2014E earnings, implying an upside of 9% which is likely to be back ended," says Angel Broking research report.
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Tags: Angel Broking, Q1 FY2013, CAGR, Sensex EPS, SBI, State Bank of India, Bharat Heavy Electricals Ltd, BHEL, Larsen & Toubro, L&T, FII, European Central Bank, State Bank of India, SBI
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