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So far, India Inc earnings kept the market sentiment upbeat (PTI)
So far, India Inc earnings kept the market sentiment upbeat (PTI)

Earnings may surprise, but delayed US stimulus to dampen market sentiment

Kotak Mahindra Bank, Axis Bank, ICICI Bank, Maruti Suzuki, Tata Motors, L&T are among the major companies due to announce their quarterly results this week

It will be yet another week loaded with earnings announcements by many big listed Indian companies. These include blue chips from the financial sector such as the Kotak Mahindra Bank, Axis Bank, ICICI Bank and HDFC AMC. From the automobile space, Maruti Suzuki Ltd, Tata Motors Ltd and Hero MotoCorp are scheduled to publish their quarterly performance this week. Investors will also be closely watching results of Larsen & Toubro and Marico Ltd among others.

Thanks to the resilience of the rural economy, a slew of companies from the consumption focused sectors FMCG, cement and consumer durables posted decent recovery in earnings.

To begin with, Hindustan Unilever Ltd saw its domestic business grow 3% in the September quarter. Another FMCG major Nestle India bounced back to double-digit growth in the September quarter. Crompton Greaves Consumer Electricals too exceeded expectations on key earnings parameters. Asian Paints Ltd saw its decorative volumes grow more than 11% in the second quarter. In the cement sector, pan-India cement maker's ACC Ltd, Ambuja Cement Ltd and Ultratech cement Ltd beat the Street's expectations on volume growth. Realisation, however, remained weak due to seasonal correction in prices.

Pent-up demand ahead of the festive season is said to be the demand driver here. The management commentaries of these companies indicate that they are hopeful that buoyancy in rural economy would last beyond the festive season, aided by good monsoon and government measures focused at the rural economy. On the other hand, commentaries indicate that urban consumption demand remained relatively weak.

So far, India Inc earnings kept the market sentiment upbeat. In the US as well, corporate earnings have been better-than-anticipation. In a note to clients on 23 October, analysts at Charles Schwab said, with roughly 27% of the S&P 500 companies having reported earnings so far, 73% have beat estimates on the top line while 84% have beat on the bottom line. This compares to the respective 65% and 85% seen in the prior quarter, the note added.

But Wall Street hardly seems to care about it. Investors remain mainly focused on the much-debated coronavirus aid package. For now, investors will have to be in wait-and-see mode.

"Over the past couple of weeks, markets haven’t paid much attention to the economic or earnings data but have drifted from one “stimulus" headline to the next," Roberts, chief investment strategist at US-based Real Investment Advice in his latest blog.

"The lack of stimulus is not surprising. There is “no incentive" for either side to pass “stimulus" before the election. If the stimulus passes, President Trump will get credit for providing aid to the American people. Such a “feather in the cap" would be something the Democrats are unwilling to provide," the note added.

In short, in the run-up to the US elections, volatility would remain high as greedy equities could discount other positive developments at a faster pace.

Back home, the new monetary policy committee (MPC) widened the scope of its discussion, beyond inflation and policy rates. The latest minutes of the MPC’s October meeting reveals that the government bond yield curve and what its implications are for investments found a fair place in discussions, besides inflation and growth dynamics.

In the commodities market, gold price premiums in India jumped to their highest in nearly three months this week. Ahead of the festive season, jewellers continued to stock up in anticipation of pick-up in demand.

Meanwhile, in the primary market, the initial public offer (IPO) of Equitas Small Finance Bank was subscribed 1.97 times on Thursday, the final day of the public offering. Analysts expect the activity in the IPO market to continue to remain upbeat going ahead.

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