EUR 350.00 For Business Accounts Only

MOSL: INDIA STRATEGY | 4QFY20 PREVIEW-Covid halts earnings recovery; Slow grind ahead

INDIA STRATEGY | 4QFY20 PREVIEW:

20% earnings decline for Nifty in 4Q; FY21 sees sharp downward revision
** In throes of an unprecedented global pandemic, FY21 has begun on a lackluster note with India as well as several world economies in an extended lockdown. This has impacted the underlying demand/supply dynamics and is expected to have an adverse impact on economy and corporate earnings. While the government has already announced several relief measures to take care of the weaker sections, we expect the return to normalcy to be very gradual and calibrated. Even the RBI has unleashed a series of important initiatives to bolster the economy. However, MOFSL’s in-house economist believes India would experience its first technical recession since the 1990s with GDP in 4QFY20/1QFY21 declining by 3%/12%. That said, we expect the government to announce more fiscal measures to revive the economy in the coming days.

** India’s benchmark Nifty has corrected 24% since Feb’20 and underperformed the global markets despite having much lower cases of COVID-19 vis-à-vis other markets. This underperformance can be explained by the relatively smaller magnitude of fiscal package for India. In fact, India has seen FII outflows of USD10b in a short period of two months with an underlying 7% currency depreciation. We expect market volatility to remain elevated and near-term market direction to be a function of policy response, global market developments, spread and duration of the virus, and indeed corporate commentaries around the short/medium-term impact of the lockdown.

** 4QFY20 Nifty profits to decline 20%: We estimate MOFSL Universe’s 4QFY20 PBT/PAT to decline 22%/25% YoY, with the laggards being Autos/Oil and Gas/ Metals. In fact, these three sectors are expected to account for the entire 25% YoY decline in MOFSL Universe’s earnings in 4QFY20. Consumer/Private Banks (benefit of low base)/ Healthcare are expected to be the key outperformers this quarter. All the key matrices are expected to post multi-quarter low growth figures; demand should take a broad-based hit across sectors with almost double-digit top line decline for the Nifty and MOFSL Universe. Nifty sales are estimated to decline 10% YoY, while EBITDA/PBT/PAT should decrease 9%/21%/20% YoY in 4QFY20.