Home Market Investors should calibrate their Q2 earnings expectations: Mayuresh Joshi

Investors should calibrate their Q2 earnings expectations: Mayuresh Joshi


The low base due to GST effect no longer exist and may no more work in favour of companies in second quarter, says Mayuresh Joshi, Fund Manager at Angel Broking. In an interview to ET Now, the expert said festive season in September quarter of last year may in fact increase the base this time. Excerpts:

ET Now: The RBI Governor Urjit Patel initially spoke about global headwinds. He spoke about rising crude oil prices and depreciating rupee. The tariff war globally too was among key points that he highlighted. Besides, he talked about how these variables pose risks to our economy. But what would you ascribe the prevailing market weakness to? Would you solely blame it on global factors, as the GDP growth projection for FY19 has been kept unchanged at 7.4 per cent?

Mayuresh Joshi: Absolutely. In the backdrop of crude oil and rupee movements, one really needs to also see how other emerging market currencies have behaved – they all have taken a beating. Whether it is Indonesian Rupiah, the Philippines currency or the Thai currency, currencies are depreciating. A natural devaluation is happening in the Chinese Yuan. All these economies are looking to become far more export-competitive. The risks that the Governor flagged off are valid in the global context. The excuse of higher MSP hikes and what probably happens in terms of imported inflation if crude moves higher and the rupee depreciates further — these are outside risks for the market as well. The policy intent was probably targeting the inflation management. But it will be very interesting to see what the regulator probably does with the currency movement i.e. whether it announces any schemes like FCNR deposits or the talks in the market related to NRE deposits.

ET Now: What are your expectations from the forthcoming earnings season? The first quarter did start off on a strong note and many companies beating the Street expectations. Do you think the trend will continue in September quarter?

Mayuresh Joshi: Earnings growth will be of paramount importance, as the market expectations had largely been laid out on hopes of extremely strong earnings. In June quarter, many companies reported healthy set of numbers be it in volume or realisation terms, thanks to a low base. The outlook, the managements presented in their concalls, too was promising. But given that GST effect no longer exist, the low base may not be working in favour. The reported earnings may still be better. If one compares this year with 2017, the festivities this time around have been pushed to December quarter. Therefore, one must keep these two important parameters in mind while anticipating earnings growth. Earnings growth across the sectors should be quite reasonable. One really needs to calibrate expectations. The FMCG volume growth that we witnessed in June quarter, even the managements have put forth that such stupendous numbers will not continue. Even if one reverts to mean in terms of volumes and realisations, the numbers should be quite reasonable. For IT companies, top tier companies should report very strong revenue growth in dollar and constant-currency terms. In addition, the growth for retail banks should be quite reasonable. There should be reasonable earnings growth, except for the oil and gas space.

ET Now: We get a lot of market participants telling us that the ongoing carnage perhaps would be a good time to nibble in into some good quality mid and small cap names for wealth creation. What exactly is on your radar?

Mayuresh Joshi: I would continue to bet on Bata India. The sector it is in has huge unorganised market. With the GST rate coming down to 5 per cent for footwear below Rs 1,000, and the general reduction of 18 per cent for the other price variants, we are expecting significant market share gains for the company over the next few quarters.

The capex strategy that Bata is adopting i.e. 500 odd stores in 400 odd cities in tier II, tier III areas, it itself is going to be very accretive from an earnings perspective. Even from the sub-segmental perspective, ladies footwear segment which accounts for 30 per cent of Batas top line is expected to grow to 40-45-odd per cent. It is a very high-margin business.

Our own sense is that 17-18 per cent growth in top line and 24-25 per cent in bottom line can is sustainable for Bata India. While the input cost inflation is there, it should be passed on to customers with minimal effect on demand. This is one stock that we probably like in the midcap space.

The other stock that we like is from the largecap space. It is ICICI Bank. The overhang in relation to MD & CEO Chanda Kochhar (she has resigned) is largely behind us. In terms of core parameters of the lender, retail advances stand at 58-odd per cent; the bank got a very strong liability franchise. In terms of asset quality, the watch list has come down. The BB-rated and below rated assets is 8.5 per cent and is dwindling down. Over a period, there could be a 14-15 per cent growth in advances. The retail segment accounts for almost 75-odd per cent of the banks treasury book. Improvement in return ratios is not ruled out. Valuations look extremely attractive.

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