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Last Updated : Oct 07, 2019 11:53 AM IST | Source: Moneycontrol.com

Heads up! 'Earning season for Q2FY20 unlikely to throw surprises'

In the coming week, the market would be driven by global factors/events along with results season outcome in the near term

Kshitij Anand @kshanand

The earning season for Q2FY20 is unlikely to throw any surprises. Reserve Bank of India (RBI)’s downward revision of GDP growth to 5.3 percent for Q2FY20 (in the backdrop of 5 percent growth in Q1FY20) from earlier 5.8-6.6 percent in H1FY20 says it all, Pankaj Bobade, Head of Fundamental Research, Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Q) A roller coaster ride for Indian markets in the truncated week. Markets lost momentum soon after the RBI policy was announced. Where do you see markets headed in the coming weeks?

A) Markets are expected to be volatile in the near-term. The asset quality concerns in the NBFC/banking sector, the outcome of US-China trade talks and political uncertainty in the US along with the unrest in Hong Kong are likely to drive volatility.

Crude oil has already cooled off on oversupply fears along with weaker demand. Domestic quarterly results season would begin shortly, though the markets are not very optimistic about the performance of India Inc., it would closely watch out for the management commentary for the rest of the year.

Close

RBI has already revised down the growth forecast for FY20 at 6.1 percent with broadly balanced risks and is expecting the Q2FY20 GDP growth to be at 5.3 percent which would improve to 6.6-7.2 percent in H2FY20.

Thus, markets would be driven by global factors/events along with results season outcome in the near term.

Q) Banking stocks took a hit in the week gone by -- largely on account of the crisis taking place in the industry and RBI policy statement. What are your views?

A) The banking sector was largely impacted by the PMC Bank and Indiabulls Housing Finance incidents, indicating further stress which could arise from real estate and NBFC exposure.

The rise in NPAs from these segments could result in another bout of heightened provisioning impacting profitability. However, even if such a scenario arises we expect the overall incremental stress in the system will lower than the previous NPA cycle.

Q) The downward revision of GDP for the June quarter of 2020 might not be a surprise but surely a sentiment dampener. What are your views?

A) The sharp 80bps cut in GDP forecast from 6.9 percent to 6.1 percent in Oct 2019 policy is further to the 10bps cut done in August 2019 policy from 7 percent.

Expected pick-up in both private consumption and investment has failed to materialize. Further, trade tensions and increased volatility in global financial markets pose downside risks.

However, government measures in August-September, good monsoon, the transmission of rate cuts will aid growth revival, albeit gradually.

Q) Earnings season is scheduled to start in the coming week -- what are your expectations? Sectors that are likely to outperform and underperform?

A) The earning season for Q2FY20 is unlikely to throw any surprises. RBI’s downward revision of GDP growth to 5.3 percent for Q2FY20 (in the backdrop of 5 percent growth in Q1FY20) from earlier 5.8-6.6 percent in H1FY20 says it all.

All eyes would now be on the management commentary to understand how they see the performance for the rest of the year.

The impact of rate cuts, good monsoon along with other measures taken by the government is likely to push demand-led consumption for H2FY20 and FY21.

We would be keenly watching out for the volume growth and rural demand outlook for the FMCG sector, slippages in the banking sector and further stress if any due to the NBFC/real estate/co-operative bank issues, deal wins and future guidance, if any, for the IT sector.

Commentary on volume growth outlook along with the impact of regulatory changes for the auto sector, government spending position, order inflows, etc., for infrastructure and capital goods companies, etc.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Oct 7, 2019 11:53 am
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