Because the financial system rebounded following the Covid led-lockdown, India Inc additionally staged a powerful present within the December 2020 quarter (Q3FY21). Festive season-led shopping for, cost-cutting measures and decrease uncooked materials prices got here to the fore to spice up company earnings, beating analysts’ expectations.
A fast evaluation of the BSE 500 corporations reveals that there are 25 companies that reported a turnaround efficiency in the course of the interval underneath evaluation – swinging from loss to revenue – as in comparison with the earlier corresponding interval. The listing consists of a number of the outstanding names reminiscent of Adani Inexperienced Vitality, Bharti Airtel, Financial institution of Baroda, Lupin, Metal Authority of India, Tata Metal, The India Cements, Dr Reddy’s Labs, Jindal Metal & Energy and Punjab Nationwide Financial institution.
On their half, the markets took be aware of the event and handsomely rewarded a bunch of those counters on the bourses. Shares of 18 of those 25 companies managed to outperform the S&P BSE Sensex on a year-to-date (YTD) foundation, having risen as much as 66 per cent as of February 22, 2021, as in opposition to a virtually 6 per cent achieve within the BSE Sensex and 4 per cent rise within the BSE500 index, as per knowledge obtainable on ACE Fairness.
“Key elements that drove the earnings beat versus our expectations embrace sharper-than-expected demand restoration with the opening up of the financial system; continued value optimisation measures; festive season that boosted consumption demand throughout the staples, durables, and discretionary sectors; sturdy operational supply by the BFSI sector; and present by cyclical sectors,” mentioned Gautam Duggad, head of institutional analysis at Motilal Oswal Securities.
Going forward, most analysts now warning in opposition to the rising commodity costs, which they really feel can dent the delicate financial restoration and fortunes of India Inc. India’s scenario as a commodity importer improved final 12 months when costs went down (median gross margin for corporations the place this issues is as much as a 5-year excessive), reviews recommend. Nevertheless, the reverse might now play out.
“A transparent threat rising from the earnings season is concern about rising commodity prices. Corporations appeared apprehensive about inflation in crude, crude derivatives, metals (metal, copper, palladium, and so on), palm oil and tea, amongst others. Individually, there may be an acute scarcity of ocean containers, in addition to the well-known scarcity of sure semiconductor elements for the auto business,” cautions a report from international brokerage agency, UBS.
In accordance with a latest be aware by BofA Securities, 31 Nifty50 corporations, or 46 per cent of free-float weighted Nifty market-cap, is uncovered to commodity-related dangers. It cautions that the total influence of the rise in commodity costs is but to play out within the markets.
That aside, market valuation after a steep rise from March 2020 low is a priority. Given this, most consultants now count on a consolidation section to set in because the markets digest the latest developments.
“Nifty valuations at 21.3x FY22 EPS are usually not cheap anymore and demand constant earnings supply forward. Rising bond yields could cap fairness valuations because the Reserve Financial institution of India (RBI) could need to do a balancing act to maintain bond yields at decrease ranges whereas managing the federal government borrowing program,” Duggad of Motilal Oswal mentioned.