Of Respite in SmallCap Stocks, Maruti Suzuki Missing Earnings Estimates and Top Stocks in Action Today

Fri, 27 Jul Pre-Open

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The BSE Smallcap Index has surged 4% since the beginning of this week. This is some respite, considering that the index has corrected 15% since the start of 2018.

While corporate earnings remained depressed on account of disruptions by demonetization and goods and service tax, the sharp rally in 2017 (gains of 58%) was driven purely by expansion in the price/earnings (PE) multiples.

Rallies driven by PE expansion are not sustainable. Expensive valuations coupled with unimpressive increase in corporate earnings has led to the 15% correction.

Even just a quick look at the Smallcap index and its 776 listed companies throws up some eye-popping data. The median correction in these stocks from their 52 week high is a massive 38%.

After two years of depressed earnings, hopes of a trend reversal are high. The corporate earnings seasons has begun and the results so far has been encouraging. Across the board, there has been a healthy increase in the earnings.

One should view this correction as an opportunity to add exposure to the quality smallcaps. Most importantly, to focus on the long term.

Our Smallcap team Hidden Treasure, have released a fresh actionable recommendation on a drug company during the month. Click here to access it.

Maruti Suzuki Plunges 4% on Missing Earnings Estimates

Maruti Suzuki India Ltd, posted a rise of nearly 27% in first-quarter profit, boosted by higher sales volumes, but missed street estimates.

The company, majority-owned by Japan's Suzuki Motor Corp, reported profit of Rs 19.8 billion (US$287.4 million) for the quarter ended 30 June versus Rs 15.6 billion a year earlier.Total revenue from operations rose 13.6% to Rs 224.6 billion.

Maruti's operations are key for Suzuki as it provides the bulk of the Japanese automaker's revenues, and has a market value of more than US$43 billion, around 1-1/2 times that of its parent.

Maruti sold 490,479 vehicles during the quarter, up 24.3% from a year earlier. Sales of compact vehicles, which include the Swift and Baleno, rose 49.8%, while sales of utility vehicles, including the Ertiga and Vitara Brezza, climbed 15.1%.

Further, Suzuki this year announced an agreement with Toyota Motor Corp for the Indian market, by which Suzuki will supply its Baleno hatchback and Vitara Brezza to Toyota, while Toyota will produce the Corolla sedan for Suzuki.

Key Stocks in Action Today

The stock of Bank of Baroda, Equitas, HCL Tech, ICICI Bank, Philips Carbon Black, Reliance Industries are expected to be in action today as they declare their results for the quarter ended June 2018.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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