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MOSL: INDIA STRATEGY | 1QFY22 PREVIEW: Vaccinated to grow!

INDIA STRATEGY | 1QFY22 PREVIEW: Vaccinated to grow!

 

• FY22 commenced with an odd sense of déjà vu as the second COVID-19 wave swept across the country over Apr–May’21, resulting in localized lockdowns and restrictions. Nonetheless, after peaking in May’21, active COVID cases have already declined 88% from the peak and restrictions are gradually being eased since Jun’21. The pace of vaccinations has also picked up – India administered 4m vaccines daily, on average, in Jun’21, double the average of 2m vaccines daily in May’21; this is expected to improve further on increased availability. The equity markets have largely looked through the turbulent period of April/May’21 and have shown strong resilience, with indices trading near all-time highs – buoyed by best-in-decade earnings delivery in FY21 and the expectation of an even better FY22. The midcap and smallcap indices have sharply outperformed the Nifty and reset several benchmarks, as discussed in . The primary markets are also seeing a flurry of activity with several IPOs lined up. Amid this positive setup, rising commodity costs, higher inflation prints, and a potential rate increase are key headwinds.
• Corporate commentary has turned positive once again from Jun’21. Several high-frequency macro indicators have also recovered – such as power consumption, e-way bills, exports, and auto fuel demand. Quarter-end updates from several corporates (such as HDFC Bank, Bajaj Finance, Marico, GCPL, Titan, and DMart) indicate a healthy revival in Jun’21 after a subdued April and May.
• After FY21 ended with a solid 15% EPS growth, we expect FY22 to commence with a bang and expect a further buildup over the remainder of FY22. 1QFY22 earnings are estimated to be strong despite the restrictions imposed, albeit benefitting from the deflated base of 1QFY21. Even on a two-year CAGR basis, we expect double-digit earnings growth owing to the resilience seen in underlying economic activity. The key drivers of the 1Q performance are: a) Metals – this would be on the back of a strong pricing environment and higher exports to offset the decline in domestic volumes; b) IT – the strong performance would continue as we expect median USD organic growth of 3.3% CC QoQ in 1QFY22 on the back of a strong demand environment and healthy YoY margin expansion; c) BFSI – despite muted asset growth, lower provisioning costs would drive strong earnings YoY; and d) Consumer – it is expected to post a healthy performance with 23–25% EBITDA/PAT growth, despite rising commodity cost pressure.