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MOSL: VOICES | INDIA INC ON CALL-Demand improvement visible; Cyclicals continue driving performance

VOICES | India Inc on Call: Demand improvement visible; Cyclicals continue driving performance; Outlook on asset quality of corporate banks improving

 

• Management commentary - the key ingredient to keeping investor sentiment upbeat - for the June quarter has provided some belated cheer to market participants. Importantly, the year-old chestnut of 'transformative reforms-led disruption' hardly finds a mentioning now. Improved consumption demand and a stabilizing economy were the common themes in management commentaries. Demand improvement across B2C sectors such as FMCG, Auto, Durables, Retail, Electricals, and even Cement is a proof to this. Some fervor was seen in the keenly watched Financials space too, with sequentially better commentary by Corporate Banks, guidance for slippage reduction and stabilization in overall asset quality.
• In BFSI, GNPL accretion across corporate banks slowed down in 1QFY19, mainly due to the recoveries from the resolution of the NCLT-related accounts, even as fresh slippages have also moderated. The operating performance, however, was impacted by margins pressure for private banks, tepid treasury income, gratuity/wage provisions and MTM losses. NBFCs delivered another quarter of consistent and broad-based growth, with profit growth at a multi-quarter-high. Management of smaller HFCs have cautioned on the growth outlook, given the supply-side constraints in affordable housing finance. Managements of larger HFCs, though, have guided for continued robust growth over the near-to-medium term. However, most companies are likely to witness spread compression as the rise in cost of funds is only partially offset by the yield increase.
• For the Consumer sector, 1QFY19 was one of the best quarters (aided by low base) in recent times, with double-digit revenue and profit growth. It turned out to be the fourth consecutive quarter of rural sales growth outpacing urban growth, with managements expecting the trend to continue, going forward. Rising raw material costs, however, pose a threat to margins.