Looking back the quarter gone by, Motilal Oswal has come out with a report called 'Breath of Fresh Air' and to discuss this, CNBC-TV18 spoke to Gautam Duggad, Motilal Oswal Securities.
With regards to Q2 earnings, he is seeing some green shoots in the economy with the numbers being much better than expected, at least in terms of quality of earnings. He said the earnings have come as breath of fresh air and one can look forward to better earnings due to base effect and disruptions behind us.
He said in their universe upgrade to downgrade ratio has improved from 0.46 to 0.84 and the surprise to miss ratio is at a sixteen quarter high at 1.3. Moreover, out of the 17 sectors that they track, almost 14 have reported EBIDA which is either in-line or ahead of estimates.
He is also confident that all the ingredients are in place to have an earnings CAGR of double-digits going forward.
He said the pace of earnings downgrade has come down, however they have not yet changed their aggregate estimates virtually, they still are at Rs 480 EPS for Nifty in FY18 and at Rs 600 for FY19.
According to him, one of the key takeaways from the second quarter earnings was the coming back of consumption and more importantly rural consumption is coming back. The ingredients for rural consumption are all in place. The possibility of consumption surprising on the upside in H2FY18 is far higher. So, the house would be betting on rural consumption, he said.
With GST rates being revised most of the consumer companies in the market have cut prices from 5-10 percent cuts, which will lead to more consumption and pick up in volume growth, said Duggad. Volume growth will likely move to 6-8 percent, which has been around 4-5 percent for the last few years. However, he is more excited about of inflation coming back because price growth makes big difference to bottom-line growth of the companies, while volume growth cannot be huge.
So, going forward one can look at double-digit topline growth for lot of consumer companies in FY19. However, one must play a mix of staples as well as discretionary space. Look at rural oriented companies like Britannia, Dabur, HUL, Emami etc., said Duggad.
One is seeing discretionary space making a comeback – companies like Titan, Jubilant Foodworks, said Duggad, adding that the house remains very bullish on Titan and it remains a structural bet from next 3-5 year point of view.
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