Nomura and BNP Paribas are negative on earnings, yet bullish on Sensex

Analysts from Nomura and BNP Paribas are pessimistic on the upcoming earnings season and suggest that the overall economic growth has still not bottomed out. Yet they expect Sensex to close above 21,000 in FY 14

Last quarter (Q4FY13), Moneylife analysed data of 1,144 companies, and noticed that sales, operating profit and net profit were subdued, due to challenging market conditions and macro-economic headwinds (Read: India Inc Q4 net sales up 6%, net profit down 3%.) Research firms are being largely negative on earnings growth for Q1FY14, as the earnings season kicks off with Infosys’s results announcement. “June-quarter results suggest a continuation of the trend of steadily weakening top-line growth that has been at play over the past two years,” says a research report from Nomura. Analysts of BNP Paribas are of the opinion that, “revenue and earnings growth will remain tepid with profit growth (ex oil marketing companies) forecast to decline from 5-7% y-y growth in the first three quarters of FY13 to 3.7% y-y growth in Q1FY14.”

Nomura research expects sales to continue to decline and doesn’t expect any bottoming out soon. It expects June quarterly earnings to be weak. It said in its report, “Net sales growth is estimated to fall below 5% year-on-year (y-o-y) for the first time in four years. The continuing slide in topline growth suggests that overall economic growth has likely not bottomed out yet.” Yet the firm mentions that it , “continues to expect around 10% growth in market earnings in FY14F, compared with a 16% growth being forecast by consensus. Our Mar-14 ending target for Sensex remains at 21,700 which implies 11% potential upside from current levels.”

Research firm BNP Paribas, in its report, state “Earnings will face a double whammy from both slowing revenue growth and continued pressure on margins... We expect economic headwinds to continue to weigh on the earnings outlook.” The firm however mentions that it “has maintained a Sensex target of 21,300 since the beginning of 2013. Since we had assumed some downside to BNPP analyst earnings estimates at the beginning of the year, we see no reason to change the target.”

On the earnings front, the Nomura report goes on to say that “While profitability in the quarter will be hit on account of forex losses resulting from the 9% depreciation of the rupee, a commensurate depreciation in the same quarter last year will attenuate the y-o-y impact on earnings.” On the other hand, BNP Paribas has given a different perspective on the earnings preview. They believe that the market has not discounted many negatives, and therefore there’s a possibility of a downslide. In their report to clients, they state: “Recent risks to the Indian market include capital outflows and currency depreciation, domestic demand slowdown, policy direction moving towards populism again, and the postponement of an Asian economic recovery. These risks don’t seem to be adequately factored into earnings estimates.” Furthermore, they state: “Revenue growth moderation appears even more severe than the decline in earnings growth. Stocks and sectors depending on the domestic economic cycle – particularly autos, financials and capital goods – may see some earnings downgrades”

On how the different sectors are expected to perform, the Nomura report mentioned, “Key sectors expected to deliver sub-5% sales growth are autos, capital goods, metals and utilities.” It is overweight on pharmaceuticals, consumer discretionary and cyclical while it is surprisingly underweight on information technology. Further, it said, “the growth environment remains weak and y-o-y operating margin compression is expected to continue for capital goods, metals and transport infrastructure plays.” Unlike Nomura, BNP Paribas are bullish on information technology, while bearish on autos, PSU banks, telecoms and materials as well as cyclicals. It expects autos, financials, capital goods and metals to witness earnings downgrades. They also expect EBIDTA margin to decrease 90 basis percentage points on their universe of stocks.

However, both Nomura and BNP Paribas are bearish on public sector banks.  The worsening of asset quality is one of the factors that will affect PSU banks. We had written exclusively on this in our cover story last year (Public sector banks - Loans turning bad), long before analysts the realised extent of the mess. Nomura is bearish on State Bank of India but bullish on select private banks. On the other hand, BNP Paribas is bearish on PSU banks in general, stating: “PSU banks have a downside risk from worsening asset quality”.



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3 years ago

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Retirement Savings II: How to grow and protect your nest egg

The second part of Moneylife Foundation’s event on retirement planning focussed on how use a mix of assets to generate retirement corpus and what are the options available post-retirement

Most savers put their savings in bank deposits, gold and real estate. A small portion of their assets may consist of equity shares, mutual funds, fixed income securities, etc. Would this kind of asset mix be sufficient to generate a sustainable income?  In the second part of Moneylife Foundation’s two-part seminar on retirement planning, Debashis Basu, editor Moneylife, focused on how one can save efficiently and safely to meet one’s retirement needs. As much as creating a corpus is vital, sustaining it through the years post-retirement is equally crucial. Mr Basu explained to the members of Moneylife Foundation, what steps one could take to protect his/her corpus post-retirement, and the different options available in case of if there is a shortfall were also explained.

As explained in the first session, Mr Basu reiterated that “Retirement planning is very complicated because there are too many unknowns, many of which need to be assumed.” The significant and most important factor that would influence how much you are able to accumulate is where you invest. Out of the various factors that one can control and which one cannot, controlling how much you can save and where you invest can significantly influence your corpus. The least one should do, said Mr Basu, “is avoid the wrong products, save as much as possible, as early as possible and invest in products that create wealth.”

Through charts, Mr Basu explained to the audience how saving more and saving earlier could benefit one’s retirement corpus. How much returns different kinds of assets can generate were also explained to the audience. “The least you can do is invest in products that grow to beat inflation,” explained Mr Basu. For investing safely, one needs to understand the different products available and the risk and return associated.

An efficient mix of these assets can help create one’s nest egg. Lack of a well-planned savings plan can leave you with much less money to spend on yourself when you have no income.  The basic purpose of investing for any goal and especially retirement is to be able to beat inflation. Stocks and equity funds over the long run of 5-10 years have more often than not beaten inflation. Other products like bank fixed deposits and other fixed income products may not deliver high returns but offer safety of capital.

The main factor that determines how you should go about saving for your retirement is your age. Mr Basu explained how over different age groups from 21 to 60 one can invest in a mix of products, taking into account the number of years to retirement. The younger you are the more time you have on your hand to generate long-term wealth. To use the power of compounding to the fullest one needs to invest in the right combination of products. The reason being, later on in life repayment of loans, expenses for child’s education, etc reduce you capacity to save. Therefore, the more you save early only benefits you in the long run.

“Post-retirement one’s main focus should be is to protect the corpus,” said Mr Basu. Here people have the option of immediate annuities, Senior Citizens Savings Scheme (SCSS) and MIP schemes, but none of these are great choices, explained Mr Basu. In the post-retirement period, it is important to choose safe assets, for which bank fixed deposits are the best. However, the main issue here is, one does not know the future returns and how long one would live. Investing in fixed income products for the very long term may turn out to be imprudent because they don’t beat inflation. Retirees may like to invest some amount of money in equity mutual funds.

Most savers have bulk of their investment in real estate. Mr Basu said, “Reverse mortgage is an option for them, but it has failed as a product in India and may pick up in near future.”

The session was followed by an engaging Q&A session. If you would like to be informed of many more such events in future become a Moneylife Foundation member. Click here to register.


Exports fall 4.6% in June; trade deficit declines

The main reason for the decline in imports and trade deficit was dip in gold and silver imports, Director General of Foreign Trade (DGFT) Anup Pujari said

India's exports contracted by 4.6%, for the second consecutive month, to $23.79 billion in June 2013 compared to that in the year-ago period.


Imports too declined marginally by 0.37% to $36 billion in the month, leading to a trade deficit of $12.2 billion. In May, the trade gap stood at $20.1 billion.


The main reason for the decline in imports and trade deficit was dip in gold and silver imports, Director General of Foreign Trade (DGFT) Anup Pujari said.


Gold and silver imports in June decreased to $2.45 billion from $8.4 billion in May.


Cumulatively, exports during April-May too dipped by 1.41% to $72.45 billion. However, imports during the period were up by 5.99% to $122.6 billion.


“Decline in gold and silver imports could be attributed to the steps taken by the government and the RBI,” Pujari said.


Oil imports in June grew by 13.74% to $12.76 billion from $11.22 billion in the same period last year. On the other hand, non-oil imports declined by 6.7% to $23.2 billion.


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