FREE

MOSL: VOICES | INDIA INC ON CALL: Gradual demand recovery; Global Cyclicals at the forefront;

VOICES | India Inc on Call: Gradual demand recovery; Global Cyclicals at the forefront; Commentary improves on Consumption and IT; Mixed voices on Financials and Capex

 

• The 3QFY18 reporting season was keenly watched to see whether the market pattern will hold (Indian equities had delivered stellar returns in CY17) and whether sectors that had faced the initial effects of recent government reforms will rotate to the forefront. It is very rare that markets and businesses would all go only in one direction, and the quarter gone by, too, was no different – earnings performance/management commentaries painted a mixed picture.
• Commentary was positive for Technology and Consumption-oriented sectors like Autos, Staples, Discretionary Consumption and Durables. Urban demand pick-up was evident, with QSR and Jewelry, among others, reporting good volume pick-up. As GST-related issues settle down further, India Inc expects the demand trends to strengthen in 2HFY18 and FY19, especially with the Union Budget placing an unequivocal emphasis on Rural India. In terms of earnings, big disappointments came in from PSU Banks, taking some sheen off an otherwise healthy quarter. Earnings quality deteriorated marginally and earnings downgrades continued (for more details, refer our recently released India Strategy report).
• B2C sectors like Consumer, Retail, Autos, Durables and Cement benefitted from a low base of demonetization.
• In BFSI, asset quality pressures remained unabated, particularly for PSU banks, largely led by slippages in stressed assets. Banks guided for an improvement in asset quality/credit cost from FY19; however, interim stress on asset quality is likely to persist as banks further cleanse their balance sheets and prepare for the transition to Ind-AS. Most private banks have indicated buoyant trends in loan growth, led by continued traction in retail and working capital loans. Among PSUs, SBIN guided for ~10% loan growth for FY19. NBFCs delivered another quarter of consistent and broad-based growth, with profit growth at a multi-quarter high. However, cost of funds is no longer benign for NBFCs. Competition continues to intensify in housing finance.