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Consensus earnings to disappoint in FY14: Nomura

Nomura expects that the consensus earnings will fail to deliver the expected 14% growth in FY14 even as they describe that earnings will be key to stock performance for the current fiscal. It has picked ICICI Bank, ITC, Mahindra & Mahindra, Dr Reddy’s Laboratories and Zee Entertainment to perform well

Nomura Equity Research has sounded a cautious tone in its latest report to clients. The research firm expects markets to disappoint this year by saying that consensus earnings will fail to deliver the expected 14% growth. It expects earnings this year to be a key catalyst towards stock performance. The report said, “We continue to maintain that earnings growth would play an important role in determining market performance this year. We further believe that consensus earnings for FY14 will likely disappoint from the current expectation of 14% growth.” Nomura has shortlisted ICICI Bank, ITC, Mahindra & Mahindra, Dr Reddy’s Laboratories and Zee Entertainment as stocks which will perform well.

Consensus earnings are a metric, often used by analysts and investors alike, to measure sentiment and expectations of the market. It is an aggregation of all analysts’ expectations and a key tool for market valuation. In this case, Nomura doesn’t expect the market to deliver 14% earnings growth. At the same time, Nomura hasn’t re-rated either, which is a bit odd, due to “structural imbalances”.

Nomura expects that earnings will be a key catalyst for stock performance this year. It found that the correlation between consensus earnings and stock prices this year is far more than last year. In other words, stock prices are expected to react according to the quality of earnings expectations (not the outcome, though outcome can affect consensus earnings going forward). Data for Nifty index stocks reveal that more than half of the difference between individual stock price moves since the beginning of this year can be attributed to consensus earnings changes over the same period, the report said. Over the same period last year, the consensus earnings were only explained in less than one-tenth of stock price movements in Nifty.

The reason the focus has shifted back to earnings is because global factors do not look too good and focus is on how individual companies perform. Nomura says in its report: “Following contraction in global risk premiums in second half of the 2013 fiscal and the simultaneous rally in risky assets, we expect the focus to turn to domestic fundamentals this year.”

According to Nomura, Reliance Industries, Reliance Infrastructure, Punjab National Bank, Coal India, GAIL, ICICI Bank, NTPC, Cairn India, Axis Bank, Maruti Suzuki all have underperformed so far this year even though they have not been downgraded by analysts. The only stock which has outperformed despite downgrades has been, ironically, DLF.

Similarly, according to the report, the stocks which have outperformed excessively are Tata Consultancy Services, ONGC, BPCL, HCL Technologies, Lupin, Ambuja Cements and Dr Reddy Laboratories. The stocks that have underperformed most are Hindalco Industries, BHEL, Punjab National Bank, Bajaj Auto, Coal India, Bank of Baroda and Larsen & Toubro.


MCHI property exhibition: Where are the buyers for Mumbai homes?

MCHI's property exhibition in Mumbai suggests weak demand from end-users due to high prices. There were a few discounts or promotional schemes on offer but none more than 5% of the sales price. Weak affordability remains the key concern for near-term volumes and a revival hinges upon income growth or a decline in property prices, feel analysts

The Maharashtra Chamber of Housing Industry’s (MCHI) biggest property exhibition in Mumbai has received poor response not only from buyers but also from developers. Several analysts are blaming high prices and few discount and promotional offers from developers for the poor footfall.
“Both developer and visitor participation at the property expo was poor with weak buyer footfall across both the days that we visited the exhibition with several developers conspicuous by their absence. While quoted prices for most projects were up 0%-5% compared to November 2012 prices, incentives such as interest subvention on the 20:80 scheme on select projects imply that prices were in a broad range of 5% over the past six months,” said Edelweiss Securities in a note.
MCHI hosted its property exhibition in Mumbai during 11th to 14 April 2013, which had over 50 developers displaying more than 15,000 properties across the country. About 30-40 new projects were showcased at the exhibition though most of these are in the pre-launch stage as they await final approvals.
Low footfalls, miniscule discounts and missing realtors 
The footfalls were seemingly low and most of the counters were empty with largely brokers inquiring about rates. While there were many 20:80 schemes offers, the prices were higher to the extent of interest payment relief. Few developers were offering Rs300 to Rs500 per sq ft discount which translates to a 5% discount on property, nothing great to evince buying interest, says Karvy Stock Broking Research in a note. Most of the new launches were from Slum Rehabilitation Authority (SRA) or redevelopment deals. Many developers like Godrej Properties, Neumec, Omkar, Parinee, Runwal Group and Sunteck Reality, who participated in November 2012 MCHI exhibition were absent this time, the report said.
Higher supply amid waning interest triggers promotional offers 
According to Edelweiss, there was a visible pick up in supply with several new projects on offer compared to the previous expo in November 2012. However, due to weak interest developers resorted to incentives like the 20:80 scheme to evince end-user and investor interest. “We estimate that the 20:80 scheme wherein purchasers’ equated monthly instalments (EMIs) would start on possession, will effectively lead to a discount of about 7%. Additionally, lenders also offered incentives such as waiver of processing fees, instant approval and higher effective loan-to-value (LTV) including funding 80% of total purchase cost, including transaction costs, the brokerage said. 
Adverse affordability may continue to hit demand
According to a report from Religare Capital Markets, there were a few instances of discounts and promotional offers (at the MCHI exhibition) but the extent was limited to 3%-5% at best. “...we believe there is some moderation in property price growth (about 10%-15% year-on-year) vis-à-vis last year (around 20%-40%). However, given the low visibility on income growth, a moderation in price growth may not be enough to improve volumes. We believe volume growth remains contingent upon price reduction or higher income levels, either of which is unlikely in the near term,” the report said.
Mumbai market to take a breather in H1FY14
Edelweiss says it expect the Mumbai property market to remain subdued in first half of FY14 post the sharp run up in prices in first half of FY13, sharp surge in supply post introduction of new development control regulations (DCR) amid an overall weak sentiment. “Contrary to popular belief that the market is irrational, we believe weak buyer interest and soft pricing post a run up and increase in supply are signs of a rational market. We estimate prices or volumes to remain soft in H1FY14, with an improvement expected in H2FY14 supported by pent up demand, lower interest rates and economic recovery,” it said.
Is MCHI exhibition slowly loosing sheen?
Karvy seems to believe so. “We highlight that the MCHI has become an advertising platform for Tier-2 & Tier-3 developers as typically these are folks with low marketing budgets looking to attract end users. Tier -1 developers have limited land banks in Mumbai Metropolitan Region Development Authority (MMRDA) and most of large format development is happening on redevelopment or SRA module which is a typical investor’s (not end user) asset class owing to high execution risks and requirement of high upfront buyers equity. Since MCHI mandates that unapproved projects can’t be marketed in the exhibition and as such developers have direct access to high networth individual (HNI) investors, there are few opportunities for an end-user at such high prices that it creates an artificial demand-supply mismatch. This disappointment over successive years has led to end-user-realtor disengagement,” the brokerage said. 




4 years ago

There is lot of stock awaiting Buyers. Builders spend a lot on advertisements but this enriches the newspapers and media. stocks remain unsold.
The Builders should come down to earth and be realistic if they really want to sell.

ashwin bahl

4 years ago

Good news if the people are staying away from this over heated prices!

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