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MOSL: VOICES | INDIA INC ON CALL: Demand momentum picking up; Cyclicals steal the show in the quarter;

VOICES | India Inc on Call: Demand momentum picking up; Cyclicals steal the show in the quarter; Upbeat commentary on Consumption sectors; Capex revival still some time away

 

• The 4QFY18 earnings report season was mixed in terms of corporate commentary - Consumption and Cyclical sectors exhibited optimism, while Capital Goods, Telecom and Healthcare expressed caution. Overall commentary indicated a pick-up, albeit gradual, in demand momentum, with disruption from macro reforms like demonetization and goods and services tax (GST) now behind. However, commentary from capex-oriented sectors, such as Capital Goods, was subdued, with indications of private capex recovery being delayed further. PSU Banks highlighted that the progress on Insolvency and Bankruptcy court cases, coupled with the recent RBI guidelines on stressed assets, will be the key determinant of a near-term recovery in profitability.
• Commentary was positive for Technology, Cyclicals (Metals, Cement and Oil & Gas) and consumption-oriented sectors like Autos, Staples, Discretionary Consumption and Durables. Encouragingly, managements across sectors indicated that rural consumption is picking up. Moreover, forecast of a third consecutive year of normal monsoon and the government's particular focus on the rural economy in an election year have raised optimism among managements. Urban demand, too, remains strong, with QSR and Jewelry segments continuing to report volumes pick-up. With headwinds from macro disruptions like demonetization and GST behind, demand could recover further.
• In terms of earnings, big disappointments came from PSU Banks, as the revised RBI guidelines on stressed assets took some sheen off an otherwise healthy quarter. For a change, earnings were not downgraded for the Nifty (for more details, refer our recently released India Strategy report). In BFSI, value migration accelerated from PSU to Private Banks, with loan growth and CASA deposits indicating sharp polarization between PSU and Private Banks. Asset quality pressure remained elevated, particularly for PSU banks, largely led by slippages on account of the RBI's revised stressed assets guidelines. Banks guided for an improvement in asset quality/credit cost 2HFY19 onward; however, interim stress on asset quality is likely to persist, as banks further cleanse their balance sheets.