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Thursday, March 28, 2024

Softer First Quarter Earnings Pull India’s NIFTY Down By 1%

By Mani. Originally published at ValueWalk.

Mirroring softer 1Q earnings and weaker sentiment globally, India’s NIFTY dropped 1% last week, with 9 out of 19 stocks missing estimates.

Sunil Koul and team at Goldman Sachs Group Inc (NYSE:GS) in their July 24, 2015 report “India Weekly Kickstart” point out that Indian equities witnessed foreign inflows of $170 million last week.

Goldman Sachs retains overweight on India

Analysing the fund flows, Koul and colleagues at Goldman Sachs point out that equities saw foreign inflows of $170 million lat week, with YTD, FIIs net bought $7.4 billion while DIIs bought $3.8 billion in equities. Joining the trend, bonds have also witnessed FII inflows of $6.7 billion so far this year.

Fund flows - India NIFTY

Turning their attention towards earnings sentiment and valuation, the analysts note FY16 earnings sentiment remains negative, with MSCI India trading at 17.7x NTM P/E and 3.4x LTM P/B:

India-Valuation NIFTY

Tracking India’s monsoon, the Goldman Sachs analysts point out that cumulative rainfall received so far is 7% below normal, with only about 55% of the country receiving normal rains:

India's monsoon monitor NIFTY

Muted expectations for 1QFY16

Focusing on India’s earnings, Koul et al. present the following reporting calendar for MSCI India’s 1QFY16:

India's reporting calendar NIFTY

They point out within sectors, CNX Infotech outperformed (up 2%) on the back of 1QFY16 earnings beat, while CNX Pharma and Realty lagged (down 5 to 7%):

Sectoral price performance NIFTY

The GS analysts point out that so far, 34% of MSCI India cap (19/71 stocks) have reported 1QFY16 results. They note out of the 19 stocks that have reported, 8 beat estimates, 2 reported in line with expectations and 9 missed. Koul and colleagues note earnings have been in-line / better than estimates in the InfoTech sector, while Staples, Inc. (NASDAQ:SPLS), Pharma and Industrials have reported softer results so far:

Recent report card-India NIFTY

The Goldman Sachs analysts highlight that consensus expectations are fairly muted heading into 1QFY16 results season:

Consensus expectations NIFTY

Taking a regional view, Koul and team captures the performance of major local indices across Asia in the table below:

India and the region NIFTY

As can be deduced from the following table, India tops the FII equity flows in the emerging Asia region:

FII equity flows - Asia NIFTY

Koul et al. also point out that India remains the strongest OW in EM funds while funds are UW North Asia including China based on EPFR data:

OW by EM funds NIFTY

TThey retain their OW rating in India and pegged their NIFTY 12-month target at 9400:

GS target for NIFTY

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