EUR 350.00 For Business Accounts Only

MOSL: INDIA STRATEGY | 4QFY19 PREVIEW-India's PE movement-Politics to Economy-Banks dominate the earnings revival

INDIA STRATEGY | 4QFY19 PREVIEW: India's PE movement: Politics to Economy; Banks dominate the earnings revival

 

Politics to dominate 1QFY20 narrative; Ex-Banking 4QFY19 earnings expected to be weak

• As we step into the new fiscal FY20, the backdrop for markets is dominated by politics. The previous five years have seen the first government with full majority after 1989. India votes over the next 50 days and high-decibel political noise will occupy the market’s attention as it struggles to figure out if the 17^th Lok Sabha will have another majority government or a coalition government with one of the two national parties as a dominant partner or a coalition government of regional parties backed by one of the national party. Once the dust settles on politics in 1QFY20, we expect the market’s focus to revert to fundamentals. Narratives like earnings revival led by banking, global growth and central bank policies, rural consumption trends given the predictions of below-normal monsoons, and the inter-play of crude and currency will dominate the discourse, in our view.
• The market’s performance has been impressive so far in CY19, with the Nifty and the Nifty Mid-cap 100 delivering 7.4% and 2.1% returns, respectively. The sharp underperformance of mid- and small-caps over Dec’17-Feb’19 has also been arrested in Mar’19, with USD4.8b of FII inflows in the month. What is relatively more comforting is the participation of broader markets in the rally, as against a very narrow nature of consolidation seen in Nifty over Dec’17-Feb’19, a point discussed in greater detail in one of our .
• The 4QFY19 earnings-report season will be a repeat of 3QFY19, with Financials driving the performance singlehandedly. Global Cyclicals – the driver of earnings growth over the last few quarters – have decelerated sharply.
• Corporate banks will account for entire growth in the Nifty and the broader MOFSL Universe’s earnings performance. PSU Banks will benefit from a benign YoY comparison due to a loss of INR241b in 4QFY18, even as profits stay flat sequentially. IT is likely to post the fifth straight quarter of double-digit profit growth, aided by momentum in deal activity. NBFCs might face significant deceleration in profit growth, but still post a respectable double-digit number.