Nomura expects September quarter to be the weakest one since 2008

In its latest “India Equity Strategy” report, Nomura remains very cautious going forward and has painted a bleak preview of the upcoming quarter. Media and consumer discretionary are likely to do well

Stocks are driven by earnings and sentiment. The more important of the two indicators is the former. Hence there’s a lot of anticipation on how earnings will be, especially in the just-concluded September quarter. In its latest note, Nomura Equity Research has painted a bleak picture of the just-concluded September quarter citing that it is the weakest quarter since the sub-prime crisis began. Nomura said, “In inflation-adjusted real terms, sales are expected to grow in mid-single digits, while real operating profit growth is expected to stay in negative territory for the fourth consecutive quarter.” In other words, the worst isn’t over and expect it to be a bumpy ride for the foreseeable future.

While the subdued earnings were already discounted by the stock market earlier, what was more surprising was the fact that the market has absorbed much of the positive news announced by the government vis-a-vis reform measures. It seems that, in this case, the government has largely tried the sentiment trick—by announcing various policy reforms, including FDI in aviation and retail. The market reacted immediately, by going up. The report said, “The around 8% market rally since 13 September 2012 and India’s outperformance relative to peers makes us believe that this optimism has been subsumed in recent market action.” The onus is now on earnings to deliver. Will they?

Check the charts below: The growth has been trending downwards. This hardly is any cause for optimism unless the government does something extraordinary or companies perform superbly. There are bound to be a few surprises though, which happens every earning seasons. But as far as overall economy is concerned, don’t get your hopes up. The sentiment, is by and large, negative, and policy measures are unlikely to affect this quarter earnings.


Given that the economy has been subdued as is demand, much of the earnings expectations will now rest on external factors vis-a-vis rupee-dollar movement, global factors as well as government ensuring that the reforms go through the parliament, especially FDI in retail which has been the flashpoint of late. With a weakening global economy and recent Fed QE3 (quantitative easing), the dollar has taken a hit already. In other words, the rupee has strengthened against the dollar, and this is bad news for exporters, especially the information technology (IT) sector. However, on the flip side, QE3 meant more foreign capital suddenly making investments in India vis-a-vis FII which boosted markets, only temporally.

Nomura opines that the market has not reacted negatively enough in the face of possible earnings disappointment even though the market is current quoting at a discount. It said, “At current levels, the market is trading at 13.6x 12-month consensus-based forward earnings, which translates into a 10% discount to the latest five-year average, and 6% discount to the latest three-year average. While at these levels, valuations do not appear to be sufficiently discounting the much-diminished expected growth scenario over the next 12 months, we would argue that incremental evidence of sustained reform momentum could well offset existing growth concerns, which have lingered for most of this year now.” As per Bloomberg estimates, Sensex earnings was downgraded by 4% from April 2012.

Further more, it said, “We remain cautious going into the earnings season, which we think could well drive further the wedge between recent market moves and the reality of continuing growth pressures. We note that the market still lacks meaningful support from earnings upgrades with net analyst earnings revisions remaining in negative territory year-to-date”.

The rest of the report delves into which industry and stock are likely to do well and which are expected to face challenges. While sales of its universe of 120 stocks are expected to be flat, overall profits and margins are expected to decline on a year-to-year basis. It remained largely cautious on most sectors but positive on media (in view of recent digitization) and consumer discretionary (lower inflation translating to more purchases). It expects bank shares to correct given they’ve risen sharply in the past few days.

Tomorrow: Earnings outlook of specific sectors


FDI in Retail - II: Consumers Will Win; Kirana Stores Will Lose

In the second part of the series, the author writes about supermarkets and our very own kirana stores, and their relevance in wake of opening up of the retail sector

At the bottom of the pyramid is the consumer who buys his provisions on a day-to-day basis, often limited to Rs5 to Rs10 worth at a time. For this, the kirana shop is the only provider. The consumer virtually no choice and has to be content with what the kirana shop gives him. Of course, there are personal comforts as the shop owner keeps talking to you, knows you and often gives you credit and will have stuff delivered to your home. However, you will not get to see the produce except as is laid out in the sacks and there would be very minimal choices. The kirana shop days are clearly numbered. Few of them will upgrade themselves in to supermarkets and thrive but many of them will surely shut down.

I have been in Chennai for slightly more than a decade. Even at that time, Chennai had its supermarkets—Niligiris and Spencers—for many decades. By the early nineties, many kirana shops had converted or scaled up to supermarkets. Today, these shops, with less space, command high level of footfalls and customer loyalty and offer better choices than the big-name counterparts. Most of these shops are family businesses which keep interacting with the customers and change the stocking profile as per their needs. Chennai is full of shops like these. We do the monthly provisions and groceries purchases from shops like these.

Another segment is the discerning customer who will buy a specific product from a specific location only. For instance, in Matunga, a wealthy suburb of Mumbai, Gujarati households will buy most of their stuff from a store called “Chheda Stores”, which offers premium quality at premium price—a niche that is unlikely to be disturbed.

Once the consumer reaches a level where purchases can be done in one or two rounds a month, he/she would shop in an air-conditioned comfort of a supermarket and look at different labels, and get things done under one roof. This is the aspiration for the consumer who is at the bottom of the pyramid. Everyone has a right to a better experience and this is where the future of retail lies.

Coming to the supermarket chains, there are major issues. Getting space at reasonable rents in most metro cities is ruled out, except maybe the outskirts. Even small format stores in prime locations are unable to make money. To give an example, Wal-Mart is focused on having its presence in smaller towns. It is yet to venture into New York given the rentals there. The present chains have started off in the metros and going in to tier-II cities. A few of them already have foreign tie ups and signal intent to get in to formal partnership once government policies are in place. So, let us not expect any radical changes when foreign brand names appear on the store shingle.

One thing that will become the bone of contention is that retail FDI will also hinge on what is sold through the store. The range of products sold through chains like Wal-Mart, Carrefour, etc is mind boggling and includes virtually everything that a home would need, not just be horticulture produce, textiles or home needs—everything. Whilst the domestic customer will be happy, what will happen is that most of the produce would be imported. For example, if you have been to Andheri, another suburb of Mumbai, there is a shop called ‘Alfa’ that stocks one of the biggest ranges of imported consumer products, from the latest in electronics, soaps, perfumes, toys or furniture!  The new retail chains that come in will have all of this and more. Naturally, this will drive the domestic suppliers out of business.

However, it is not that retail FDI will take off in a hurry. The biggest challenge is talent. You have to just go to any retail chain and see the problem. Talking to one of the supermarket chain managers, the feedback I got was about the staff issues relating to competence and integrity. India does not have a set of people who are willing to put in long hours in a store and wear the smile. There is apparently very little effort from the staff to learn the ropes and labour turnover is high.

And, to get the retail chain running, we need infrastructure and power. We need large properties at low rents, with huge parking lots and easy access. We need governments that do not tax movement of goods from one state to another. Without all this, FDI in retail is a non-starter. FDI in retail is like finding a brick; by itself it has no meaning and just a part of an edifice. To put the brick in place, you need everything else.

Retail chains are a financially unviable project so far in India, given that everyone seems to be losing money. Rentals are too high and nothing has been done to improve the supply chain. Going by what is happening so far, we have not even touched the surface. Who will gain?

At the end of the day, the consumer is going to gain. Lower prices? Maybe not. But surely better choice, transparency and fairness. Will the farmer benefit? He will find it very difficult to escape the middleman. Like middlemen in every profession, they will find ways to survive, especially given the reluctance of the white-collar retail chain guys to roll down their sleeves and get cracking. What about the kirana wala? Don’t worry, he will thrive one way or the other. In any case, he does you no good in terms of either quality or price. He is one whose days are numbered and has to upgrade to get better. He has ducked all taxes and cheated most consumers; no need to shed tears for him. Some professions become extinct over time.

To sum up, FDI in retail is merely a talking point for politicians. It makes no difference if it is closed or open. In any case, organised retail is spreading out big. Maybe FDI glamour will spread it out much quicker. It is best to recognise that change is upon us. Those state governments and the so called leftists, who oppose this for the sake of it, do not know what they are shouting at. They are like the dogs that bark, simply because it knows nothing else.

(The author can be reached at [email protected].)



Chandragupta Acharya

5 years ago

No one, not even one commentator or analyst has been able to explain why Indian retailers like Reliance, Tata or Birlas could not do what we are now expecting the foreign retailers to do. Do they lack management skills at backend processing or money to set up cold storage chains? No. Then, why are we expecting the foreigners to perform miracles. Could you please give your views on this?

Narain Jagirdar

5 years ago

A very optimistic picture is painted in the two articles and one hopes it does turn true, for consumers, for farmers, for government and for the overseas investors. In food retailing, the Walmarts have the entire world to source their goods from, and do. That one thing may upset all that is hoped for and by the farmers - better prices, cold chains, etc. Ultimately, please remember that pure capitalism is a search for profits led by pure greed. See the US!

nagesh kini

5 years ago

The mom-n-pop-next door kirana and vani (in Mumbai) are here to stay because of the many inherent advantages the neighbourhood derives - easy accessibility, delivery of smaller quantities on phone call, extended credit lines. We have had Niligiris, Spencers in the South, there is Baligas in Mangalore, many chains like Shoppers Stop, Trent in Mumbai.
People like Didi don't like the "F" - foreign in the Direct Investment in Retail!
Big Hospitals haven't displaced the General Practitioners, nor the MNC Audit firms the smaller CA firms. Both have niches of their own. They can co-exist.

Vaidya Dattatraya Vasudeo

5 years ago

Going by what has happened in US, once the retails have gone, it will be the turn of consumers to lose, helplessly.

Bounced cheques: SC ruling makes prosecution easier

The Supreme Court has over-ruled its previous judgements in order provide relief to the holders of bounced cheques under the provisions of the Negotiable Instruments Act

It has been observed lately that the trend of reversing important judicial decisions has been on a rise i.e. a decision is reversed due to a difference in the opinion of the different benches presiding over matters pertaining to the same question of law and sharing the same background as to the facts of the case. Such a practise is being adopted more often by the Supreme Court, which being the highest court of law is regarded as the epitome for all legal issues. The practise of reversing a decision is considered appropriate and necessary only in the wake of adopting a dynamic approach towards law instigated by a constant change in the business dynamics and influenced by external factors.

To cite a recent example of such practise, reference shall be made to the case of Bhatia International Vs Bulk Trading SA1 (Bhatia International), the decision of the Supreme Court by virtue of which it was held that Part I of the Indian Arbitration and Conciliation Act (Arbitration Act), dealing with the power of a court to grant interim relief, could be applied to arbitration disputes with a foreign seat unless the parties specifically opted out of such an arrangement, was overruled by a subsequent decision of the court in Bharat Aluminium Co Vs Kaiser Aluminium Technical Services Inc2. In this landmark judgment, a constitutional bench of the Supreme Court held that Part I of the Arbitration Act will have no effect on international commercial arbitration held outside India unless it has been agreed that such awards shall be enforceable in India in accordance with the provisions contained in Part II of the Arbitration Act. Thus, in case of an international commercial arbitration, no application for interim relief will be maintainable as the application of Part I of the Arbitration Act is limited only to arbitrations taking place within India.

Such inconsistency should be discouraged in the course of imparting justice on substantial matters of law. Moreover, in a country where high reliance is placed on judicial precedents both by the citizens as well as the courts, difference in the opinion will prejudicially affect the rights of the parties directly involved, thus, consequentially acting to the detriment of the society and causing a significant decline in the faith held by the citizens on our judicial system.

SC over-rules prior decision: Assigns true intent to Section 138 of NI Act

The Supreme Court while deciding the scope of Section 138\142 of the Negotiable Instruments Act, 1881 (hereinafter referred to as ‘NI Act’), has over-ruled its previous decision thus importing true character to the intent of the legislature. Section 138 aims to promote better compliances in terms of honouring cheques and discharging liabilities by imposing a penalty for any default committed in this respect. It is a medium of speedy remedy provided for the protection of the holder/payee of the cheque, where the debtor seeks to discharge his obligation through cheque but does not intend to honour it.
However, the current practice adopted by the courts and the time spent to arrive at a final decision has inadvertently failed to meet the intent of the Legislature behind this provision and made it worthless in the statute books. The case to be dealt with subsequently is an apt example depicting the inability of the courts to provide speedy remedy as in this case, the aggrieved party had to strive for a period of ten years (approximately) before they could be accorded relief.

As per the proviso to the Section, there are three essential pre-requisites which are to be fulfilled for the application of this Section:

  1. The cheque is to be presented for payment within six months from the date it is drawn or within its validity period, whichever is earlier;
  2. The payee/holder in due course has to give a written notice to the drawer within 30 days from the intimation of dishonour from the bank, demanding the payment of money.
  3. The drawer fails to make the payment of the money within 15 days from the receipt of the notice.

Further Section 142 of the NI Act requires the complaint to be made within one month of the date on which the “cause of action” arises under clause (c) of the proviso to Section 138 i.e. failure of the drawer to make payment within 15 days of receipt of notice by the holder/payee.

So, an essential question which arose for determination is when does a “cause of action” arise and whether a payee/holder can in due course initiate proceedings under Section 138 after a subsequent dishonour of cheque by the drawer if he has not initiated any action on earlier cause of action?

These questions have been a matter of debate in various rulings. The matter of Sadanandan Bhadran Vs Madhavan Sunil Kumar3(hereinafter referred to as ‘Sadanandan’s case’), decided by the apex court was a landmark judgment  before it was over-ruled in Msr Leathers Vs  Palaniappan and Anr.4(‘Msr Leathers’) by the Supreme Court itself.


The facts of both the cases being essentially the same are that the holder/payee had served notice under clause (b) of proviso to Section 138 on the first default by the drawer, yet did not file a complaint despite failure of the accused to make payment of the amount covered by the cheques, on assurance being given by the drawer that the cheques will be honoured on being presented again. However, even on subsequent presentation of the cheque for encashment by the holder/payee, the cheques were dishonoured again for want of insufficient funds. Notice was served by the payee and on failure of the drawer to pay the money; complaint was filed under Section 138.

In Sadanandan’s case5, the scope of Section 138\142 of the NI Act was given a limited meaning wherein the Supreme Court held that the “cause of action” under clause (c) of the proviso to Section 138 can arise only once and failure of the aggrieved holder/payee of the dishonoured cheque to file a complaint within 30 days of the first cause of action shall be treated as an absolution of his right. The apex court in this case adjudged that the subsequent presentation of cheques and the default committed thereby shall hold no relevance despite the fulfilment of all the preconditions stipulated for an offence to take place under Section 138 of the NI Act.

However, the recent judgment of the Supreme Court in Msr Leathers6 has brought out the essence of Section 138 of the NI Act, totally in sync with the intent of the legislature and the very object of Section 138, i.e. to impart credibility to negotiable instruments in business transactions and uphold the efficacy of and faith in the banking system. In the instant case, the question before the Supreme Court was similar to that in Sadanandan’s case (supra). The court negated its earlier ruling, observing the following:

  1. Sections 138 and 142 do not in any manner restrict the right of the holder/payee to present the cheque for encashment several times within a period of six months of it issue or the validity period whichever is earlier.
  1. There is nothing in the Act that prohibits the payee/holder in due course to demand the money by serving a fresh notice in case there is second/successive default by the drawer of the cheques. Taking a practical approach, the court commented that it is the right of the payee and not the obligation to initiate the prosecution proceedings; the payee may defer prosecution on bona fide grounds i.e. either on his own volition with an intent to avoid proceedings or on an assurance by the drawer of the cheque that the same will be encashed if given some time. It also opined that:

There is in our opinion no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where the prosecution is deferred till the cheque presented again gets dishonoured for the second or successive time.” (emphasis supplied)

  1. Coming to the expression “cause of action”, the Supreme Court remarked that the cause of action under Section 142 will arise no sooner than when the drawer of the cheque fails to discharge its obligation by making payment to the payee/holder of the cheque within 15 days of the receipt of the notice required to be sent in terms of clause (b) of proviso to Section 138 of the Act. For the dishonour to culminate into the commission of an offence, all the three requirements stated under the proviso to Section 138 are to be met. Further the apex court refused to accept that the cause of action can arise only once and observed that a fresh cause of action may arise on every subsequent dishonour of cheque provided other requirements as mentioned earlier are duly complied with.
  1. Nothing in Section 142 suggests that expiry of the limitation would absolve the drawer of the criminal liability if the cheques continues to get dishonoured by the bank on subsequent presentations.

Therefore, based on the above observations, the Supreme Court upheld that the prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act.


The landmark judgments of the Supreme Court over-ruling its previous decisions are inevitable in as much they have given effect to the true intention of the legislature by adopting a fair and just approach and fulfilling the purpose for which the statutes have been enacted that is to protect the interests of different classes of people. However, the frequent negation of earlier judgments is not a healthy approach and should be discouraged unless a substantial question of law is involved or it is mandatory to do so in the interests of promoting justice and equity.

(The writers can be reached at [email protected] and [email protected], respectively.)



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