ACCHHE DIN are surely round the corner... Angel Broking

Views of Mr. Mayuresh Joshi (Fund Manager, Angel Broking):

The equity markets continued their upward momentum and closed at the all time high levels. Significant FII flows aptly abetted by DII contribution gave a leg up to the rally and stocks across varied sectors had a strong rally. Telecom stocks got punished as Jio published 73 million subscribers signing up for the Jio prime membership plan and what would be interesting to note is how many of these subscribers convert by paying up to their desired data packs (by April 15th) and what would be the bifurcation between the prepaid and the post-paid base. The existing telecom incumbents were reeling under pressure as competitive data packs and pricing announced by them is widely expected to pull down their key operational parameters and the announcement made by Jio is certainly going to eat into their Subscriber and Revenue market share. L&T showed a smart move along with other heavyweights like ICICI Bank, Dr. Reddy, HDFC, Asian Paints, GAIL and Axis Bank from the large cap names while the mid cap universe witnessed smart moves by the likes of Siemens, SAIL, ABB, Petronet, BHEL, Godrej Industries, Reliance power and Arvind to name a few.

With Q4 earnings slated to begin in the next few days, it shall be pertinent to note here that companies that post a reasonably healthy set of numbers leading to a beat in terms of earnings expectations (especially considering that Q4 was typically the quarter when remonetisation was taking place during the first half of the quarter) can perform exceedingly well. How Banks are able to report improving asset quality trends in a scenario where credit growth still remains sluggish, consumer discretionary industries are able to generate reasonable volume growth recovery after the demonetisation aftermath leading to recovery in value (measured by top line and EBIDTA growth), auto companies able to report better numbers indicating sustenance of volume growth trajectory going forward (generally across segments including 2 wheelers, 4 wheelers, tractors), the pick-up in activity for NBFC's including Housing financing companies, rural focussed financing companies and the consistency observed in asset quality recognition and management commentary for future growth potential, cement companies and their ability to exhibit volume growth and trends for the next year indicating improvement in utilization levels and pricing environment improving thereof. IT and Pharma might face headwinds for expected trump policy announcements and currency fluctuations resulting in drop in EBITDA and EBIT margins. On the whole Q4 earnings can be mixed bag but my sense is that selective Banks from the private space and large selectively large PSU Banks might surprise positively, consumer discretionary including autos, paint, staples, FMCG selectively might exhibit good earnings trajectory as they emerge out of the demonetisation pain, power/power ancillary companies will in all probabilities generate reasonable numbers, Housing finance companies and selective rural focussed NBFC's can report better numbers sequentially. Telecom, IT, Pharma, Capital goods as a sector generally might underperform in terms of reported numbers but management commentary in terms of the future outlook shall hold key for select few stocks within these spaces. A long term investor needs to carefully identify stocks from a valuation perspective where earnings trajectory look strong, the prospect of opportunities in the business vertical appear strong and where the business is backed by a strong management and ethical corporate governance. Markets are at the current juncture backed by strong flows both domestically as well as FII money but corporate earnings still appear weak and the valuations in this respect seem demanding. The street is of the belief that with a strong and reform oriented government at the centre and with superb government spending (as indicated by the planned capex trends in the past and continuance of the same in this fiscal, though private capex still is languishing) earnings recovery should be evident by the second half of this fiscal and if this thesis is indeed proved right in the next few quarters beginning first quarter of the coming fiscal, the markets shall surely re-rate. Here's hoping that this is indeed how the trajectory pans out and if so ACCHHE DIN are surely round the corner!!!

Source : Equity Bulls

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