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Who let the bulls out? - Views on News from Equitymaster
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  • Nov 10, 2001

    Who let the bulls out?

    What an earning season can do for sentiment! And probably why fundamentals will always continue to remain important. With flushing out of popular quick money investment ideas the market has once again reverted to what it will always fall back to; fundamentals. This is heartening for believers, like us, in old investing methodologies -- Ben Graham style. That said, corporate India has pleseantly surprised investors, considering the all round gloom, with a better than expected performance for the second quarter ended September '01.

         India Inc.: Performer under pressure
    (Rs m) 2QFY01* 2QFY02* % change
    BPCL 3,589 1,819 -49.3%
    HPCL 2,225 1,403 -36.9%
    RPL 3,720 4,110 10.5%
    L&T 125 405 224.0%
    ACC (155) 170  
    Hindalco 1,678 1,671 -0.4%
    Sterlite 355 240 -32.4%
    Tisco 1,153 275 -76.1%
    Tata Power 1,391 2,420 74.0%
    BSES 600 624 4.0%
    BHEL 119 1,464 1130.3%
    RIL 6,600 7,020 6.4%
    SBI 6,057 6,439 6.3%
    HDFC Bank 482 693 43.8%
    Corporation Bank 710 932 31.3%
    Telco (1,582) (618) -60.9%
    Hero Honda 603 983 63.0%
    Bajaj Auto 614 1,420 131.3%
    Punjab Tractors 309 310 0.3%
    MTNL 4,474 3,824 -14.5%
    VSNL 3,472 3,685 6.1%
    EIH 167 110 -34.1%
    Asian Paints 305 296 -3.0%
    HLL 3,312 3,992 20.5%
    Nestle 379 527 39.1%
    Infosys 1,540 2,016 30.9%
    Wipro 1,540 2,157 40.1%
    Satyam 670 1,341 100.1%
    Dr. Reddy 427 1,435 236.1%
    Ranbaxy 531 891 67.8%
    Cipla 517 604 16.8%
    Glaxo 153 181 18.3%
    Grand Total 46,080 52,839 14.7%
    *net profit figures in September quarter

    Taking key representative companies, sample of 32 stocks, from a cross section of industries shows that aggregate post tax profits for second quarter of fiscal '02 grew by 14.7% YoY. This is significantly better than market estimates, which had built in expectations of a YoY decline in 2QFY02 profits. The reading is in line with our weekly poll -- Market Drivers -- where 56% of the sample voted that 2QFY02 results beat their estimates.

    The laggards are primarily from old economy sectors skewed towards energy sources, metals and hospitality. The former two sectors are essentially commodities, highly sensitive to business cycles with pricing determined in international markets. Companies from these sectors are likely to move downstream to insulate their earnings from downturns in business. Speaking of commodities, among the stunners this earning season was cement. The sector is likely to have done well with the cartel sticking to its guns of administering production leading to better realisations and margins. Also, the Government's drive of building world class road infrastructure has helped sustain demand. Others to have surpassed expectations were the banking, pharma, software and auto sectors.

    At the aggregate level, India Inc. has pulled off a better performace by maintaing vigil over operating costs and lower interest burden. Bottomline growth in times of slackening demand seems to indicate that India Inc. is cutting flab to remain competitive. Investors will have to taken into consideration such structural changes in operations and financial management, which could yield results in bottomline despite uncertainty at the topline.

    Much of the current downturn came into effect in the fourth quarter of last year. Therefore, one can expect one more quarter of challenging earnings growth. Thereafter, the YoY effect is nullified. Backed by earnings and expectations of a V-shaped recovery in the U.S, domestic markets are out to break resistance levels. Additional fillip to equities has come in the form of lower interest rates, increased liquidity and disinvestment noise from the centre. Also, due to their relative insulation from world markets, India and China are likely to register the highest economic growth. India having a more developed equity market, compared to its neighbour, could attract increased global portfolio investments.

    Markets, over the past three weeks, have been testing resistance levels at 3,070. Building a base close to the resistance camp, markets seems to be garnering strength to launch the break through salvo and head towards pre-September 12 levels of 3,150. The next resistance falls at 3,300 levels.



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