With the Nifty again in aiming for 10K and earnings season half way through, the question is how investors should approach the market.
Gautam Duggad, Head-Research, Institutional equites, Motilal Oswal Securities said so far the earnings have been in line with expectations but there are many more companies to yet report. Although we did have good surprises from Wipro, HUL etc, he added.
However, for the quarter per se, the house has built in zero percent growth for Nifty for this quarter because largely oil marketing companies are likely to report 50-60 percent profit decline. However, aside of OMCs the growth should be around 8-9 percent.
The key would be management commentaries around few sector to assess the impact of goods and services tax (GST), he said. Market consensus is building around 16-17% earnings growth for Nifty in FY18. However, since the house is starting with zero percent to minus 2 percent growth in first quarter, the onus for FY18 earnings would be the rest three quarters, said Duggad. "So not excited about this quarters’ earnings growth," he said.
According to him, wherever valuations are elevated, just numbers meeting of expectations will not help the stock prices. However, in spaces where expectations are depressed and valuations are relatively undemanding for eg IT and pharma – there even meeting of expectations can drive stock price movement upwards.
With regards to oil marketing companies, the house had downgraded their stance to neutral – both BPCL and IOC but HPCL has seen strong movement on back of merger deal with ONGC. There the key remains how minority shareholders will benefit.
RIL has been the biggest delta giver in 2017 and earnings as well have been good both on refining and petchem side. However, their plans on telecom in the AGM will be keenly watched. So, from here onwards the stock will mirror the earnings growth and what happens on the telecom side from next 6-9 months perspective.
With regards to cement, the house expect profits to largely remain flat and expect volume growth to remain in 5-6 percent band for this quarter, he said, adding that so while volumes will remain good and realisations maybe stable, margins will take a beating, impacting profitability.
Although they have raised their estimates marginally on ACC they do not expect the upmove to last for long, so no meaningful jump in target price or rating, said Duggad.
With regards to NBFCs earnings, the house expect them to return to normal with a 20 percent earnings growth from 3 percent seen in earlier quarter because of demonetisation. However, stock prices may be very divergent to earnings performance because the growth is already built into the price, said Duggad. The approach has to be very stock specific and cautious, he added.For full discussion, watch video