Investors look to global growth for earnings power

A strong earnings season would help justify pricey stock valuations, with the S&P 500 rallying this month to its most expensive since 2004 on a forward price-to-earnings basis


While the US economy has gotten a lot of attention since the 8 November election and President Donald Trump’s vows to boost the domestic economy, data during the quarter has suggested the global economy is strengthening. Graphic by Naveen Kumar Saini/Mint
While the US economy has gotten a lot of attention since the 8 November election and President Donald Trump’s vows to boost the domestic economy, data during the quarter has suggested the global economy is strengthening. Graphic by Naveen Kumar Saini/Mint

America First may be a main policy of the White House and fuel to the stock market rally, but US investors are looking overseas for stronger earnings as S&P 500 companies are set to report their first quarter of double-digit profit gains since 2014.

A strong earnings season would help justify pricey stock valuations, with the S&P 500 rallying this month to its most expensive since 2004 on a forward price-to-earnings basis.

While the US economy has gotten a lot of attention since the 8 November election and President Donald Trump’s vows to boost the domestic economy, data during the quarter has suggested the global economy is strengthening.

That is welcome news for S&P components, since nearly half of their sales come from overseas.

For the entire S&P 500, analysts are projecting earnings up 10.1%, compared with a year ago, which would be the first double-digit increase since the third quarter of 2014, according to Thomson Reuters data.

Cement: North India sees highest y-o-y spike in price

Cement prices in January-March jumped 4% across India on a year-on-year (y-o-y) basis.

JM Financial’s channel check note on cement says northern India saw the highest price increase of 25% y-o-y.

On a month-on-month basis, cement prices in April have been hiked 5-15% across regions.

However, it should be noted that cement production continues to linger at multi-year lows and demand remains muted.

Thus, sustainability of higher prices is key to cement firms maintaining margins.

On the cost front, petroleum coke prices have marginally moderated from the peak seen in December 2016, and an increase in fuel cost is expected on higher cost inventory for cement companies, the report added.

Tea prices may go up in 2017 on lower supplies

Bulk tea producers are expected to benefit from higher realizations due to supply issues in Sri Lanka and Kenya, according to ratings firm ICRA Ltd.

It expects buying patterns will influence the actual extent of price change, as it did in 2016, but also cautions pressure on costs from higher wages may keep margins and debt ratios in check.

In 2016, India’s tea output was up 2.5% while global output was up 3.5%.

ICRA said early weather forecasts suggest lower rainfall in Kenya, which may affect global tea availability as Kenya is largest exporter of black tea.

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