The liquidity rally has already pushed valuation of many companies near their long-term averages and any corrections could be a welcome sign for long-term investors.
Equity markets love one thing i.e. earnings. The Indian market has been hitting record highs largely on the back of flows as earnings have taken a back seat.
The S&P BSE Sensex and Nifty’s fiscal year 2018 consensus earnings per share (EPS) estimates have already been pared by 11.1 percent and 9.45 percent, respectively since the start of the fiscal year and are now at Rs 1,528.89 and Rs 494.46, said a media report.
But, things might just be turning around for some companies going by their forward EPS projections. Forward EPS is nothing but an estimate based on numbers which are projections.
Investors are more interested in knowing the forward EPS to get some indications about the future earning a potential of the company.
e have collated a list of companies which are likely to grow their earnings by double digits towards the end of FY19.
The stocks where forward EPS is higher due to an improvement in the demand scenario or fundamentals can be accumulated on dips as they look attractively valued, suggest experts.
The stocks where EPS is likely to more than double in FY19 include names like M&M Financial, Tata Motors DVR, DLF, Power Finance, Shriram Transport, Tata Motors, Bharti Airtel, and Shree Cements, according to data collated from Reuters.
Most of the stocks have under performed benchmark indices so far in the calendar year leaving aside DLF which rose over 100 percent are Shriram Transport which has already rallied 45 percent, Bharti Airtel rose 62 percent, and M&M Financial gained 63 percent in the same period.
Before coming to a conclusion that all these stocks will do well, we have to access the base impact and the trend of re-rating in valuation and prices. Basically, to understand how much of that is already factored.
Nair further added that if the outlook of these companies is likely to revive strongly, they will be able to outperform the respective index over the next one year.
The Nifty50 fell by about 2.5 percent last week which looks like we are heading for a turbulent December. If the market does see corrections, some of these stocks could turn out to be good long-term picks.
The liquidity rally has already pushed valuation of many companies near their long-term averages and any corrections could be a welcome sign for long-term investors.
Most of the companies mentioned in the list are quoting at high valuations (based on historical trends of their valuations). Hence, a lot of the positives in their stories are already being captured in their current prices.
Banks & finance companies may see lower provisioning going forward (and hence higher profits) in case the NPA resolution measures take effect soon. Telecom companies could perform if the consolidation story plays out.
Jasani further added that realty stocks could also do well (though they have already run up) as the sector undergoes gradual rerating led by macro events and policy changes.
Earnings revival possible!
The September quarter numbers i.e. Q2FY18 came as a welcome relief with earnings, topline and profits meeting expectations. The net profit growth improved to 6 percent which was negative 11 percent in Q1FY18, mainly owing to GST-led re-stocking.
The Nifty FY18/19 earnings estimates were broadly restored in Q2FY18, after 3-4 percent cuts in each of the past 3 quarters. With this, H1FY18 Nifty EPS growth is 0 percent.
While the base is supportive in second half of FY18 thanks to demonetization, the asking rate is still steep (24 percent on our estimates and 16 percent on consensus estimates). We peg our FY17/18E/19 Nifty EPS at Rs 450/500/625 , 15-17 percent earnings CAGR over next 2 years.
The September quarter results were better than most analyst estimates. The market was hoping for a PAT growth of 6 percent, 14 percent and 13 percent for Sensex, Nifty50, and BSE100 respectively on a YoY basis.
If we adjust for one-time or extraordinary cases the actual growth is about 5 percent, 10 percent, and 14 percent, respectively. That is maybe marginally lower, but is good in spite of the economic pressure. Importantly, about 45 percent of the results are above expectation while bad results are for those companies which were already under poor expectations,
Given the positive outlook by many management and also an improvement in the real economy, we are bound to engage in a better period ahead.
The impact was seen in consumer-oriented sectors like discretionary, durables, electronics and ancillaries, while uptick in infrastructure spending, reduction in interest cost, increase in commodity prices and restructuring in NPA's provided an upsurge in the horizon.
The sectors which have done well with surprises were finance, chemicals, cement, auto, infra, and metals whereas, neutral performers are FMCG and oil & gas, while the poor performers are power, telecom, pharma and IT.
MORE WILL UPDATE SOON!!
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