Q3 earnings weakness led by PSUs: Morgan Stanley


New Delhi, Feb 20: Even as we near the end of earnings season, amid rising volatility in the stock markets, Ridham Desai of Morgan Stanley says that Q3 earnings weakness was led by public sector undertakings. Taking stock of the earnings reported by India Inc in the quarter ended December-17, Ridham Desai says that improving revenue and breadth is a key positive in the quarter. Notably, while the PSUs in general have reported weak earnings, results of the PSU banks need special mention.
Top brokerages say that the PSU banks are still plagued with burgeoning NPAs. The country’s largest lender SBI Group had reported a staggering Rs 1,886.57 crore net loss for the quarter due to rising bad loans and provisions. Despite the massive PSU bank reform with a staggering capital infusion of Rs 881 billion, market voices point out that investors should be selective in buying stocks from the sector.
However, while the PSUs have lagged, their private peers have ensured that earnings overall were in line or better than analyst expectations. According to a recent Bloomberg report, more than 75%of the blue-chip companies in the broader Nifty-50 Index have reported results that matched or beat analyst estimates in the third quarter ended December-17. Ridham Desai says that earnings growth momentum faded towards the end of the quarter. Further, the expert notes that the revenue growth and momentum has remained strong across companies.
Experts observe that the earnings recovery has shown a promising trend, and have latched on to the momentum gained in the previous quarter ended September-17. “The earnings have come as breath of fresh air and one can look forward to better earnings due to base effect and disruptions (GST and demonetisation) behind us,” research firm Motilal Oswal had said taking stock of the July-September earnings.
Where should the investors look to invest in such a scenario? “With the recent correction the overall valuations in the market have become quite reasonable. Also, the Q3 result season so far has been quite encouraging which further makes the market more reasonable. We continue to believe that midcap will be able to outperform large cap in the long run,” Alok Singh, CIO of BOI AXA mutual fund said.