Why Q3 earnings will be keenly watched by D-Street

We have quarterly earnings around the corner which will further decide the market direction and we expect companies to deliver robust number.

   

The Indian equity market emerged as one of the best performers globally in 2018 in the wake of resilient macroeconomic factors despite heavy volatility. The Nifty index delivered a positive return compared to a negative return by major global indices.

With the controlled crude prices, strengthening rupee and positive macros India is likely to record even better economic performance during 2019. Also, with a major correction in international oil prices, trade and current account positions are likely to improve considerably.

However, we expect the market to remain volatile for the first half of the year driven by a series of global and local events like the US Fed’s rate action, the progress of US-China trade war, US' action against Iran’s oil exports and Central election.

Also, North Korean Kim Jong Un's warning to President Trump on taking a 'new path' in nuclear talks if the US didn’t relax economic sanctions adds up to the worry.

The auto sales number for December 2018 did not meet street expectations. Quarterly earnings that are around the corner and expected to be robust will chart the market direction.

Here are the stocks we are bullish on:

Asian Paints | Rating: Buy | Target: Rs 1,491

Asian Paints is India’s leading paint company and Asia’s third largest paint company, with a group turnover of ₹169 billion.

The company has to its credit a leadership position in its market, proven track record of adapting to changes in market conditions, professional management, history of innovative strategies in marketing, efficient manufacturing and logistics in place and prudent financial management.

In terms of growth, we continue to expect the Indian paints industry to grow at around 8-12 percent in the next few years and demand factors remain strong in terms of growth.

At CMP, We recommend a BUY on the stock with a target price of Rs 1,471 per share.

Indraprastha Gas | Rating: Buy | Target: Rs 319

The recent Supreme Court decision, which proposes that Indraprastha Gas buy Haryana City Gas Distribution will add to volumes and provide visibility for growth in the years ahead. Delhi’s green budget with plans to provide concession of 50 percent on the registrations of CNG cars will promote the cleaner fuel.

Environmental concerns in Delhi have brought to the fore the urgency of using cleaner fuels, which puts IGL in a sweet spot. IGL has a unique identity of a company with a rare mix of volume growth and strong margins, supported by relatively lower gas prices and supportive governmental initiatives.

We expect the volume growth momentum to continue for the company as State government will add 2,000 new buses in FY19, and expansion of its pipeline network in the new areas- Karnal, Rewari and part of Gurugram will add volumes from H2-FY19 onwards. We maintain our BUY rating on the stock with a target price of Rs 319 per share.

Hindustan Unilever | Rating: Buy | Target: Rs 2,250

Hindustan Unilever Limited (HUVR/HUL) is India’s largest fast-moving consumer goods (FMCG) company with a heritage of over 80 years.

With HUL being the largest FMCG Company with one of the largest footprints in terms of products and distribution network and its strategy to target volume growth primarily should drive healthy growth in medium term.

The company has also entered into health drinks segment with the proposed amalgamation of GSK Consumer business which we believe is value-neutral while earnings accretive for HUL at current ratio.

In terms of per capita, FMCG consumption India stands lowest within its developing country peers at just around US$29 as against Indonesia which amounts to almost double while China at four times India’s consumption.

For the H1-FY19, HUL has reported a growth of 11.2 percent in its revenues of which volume growth was around 11% for the period.

We expect HUL to grow at a CAGR of 13.5 percent in the next two years. We estimate the company to report revenues of Rs 401,280 million in FY-19E and Rs 457,561 million in FY-20.

MORE WILL UPDATE SOON!!