Q4 Earnings Outlook Remains High Despite Weak Economy, Says JM Financial

The earnings expectations for the last quarter of the financial year 2019 continues to remain in double digits despite prevailing liquidity issues and a weaker economy, according to JM Financial Ltd.

“The ask for the fourth quarter is still high,” Suhas Harinarayanan, head of institutional equity research at JM Financial Institutional Securities Ltd., told BloombergQuint. He expects India Inc. to hit higher single-digit earnings growth, driven largely by corporate banks. “If the financial companies achieve growth, a double-digit earnings improvement could still be seen for the broader market.”

The market is currently in an accumulation zone, he said, recommending investors to buy on correction. “We will see some of the disappointment probably coming onto the fourth quarter as well.”

Outlook On Various Sectors:

Information Technology

• Large-cap IT stocks are trading at a premium to their historical averages, except one or two, where the driver is global telecom capex led by 5G technology
• Don’t see much of an upside from the valuation perspective

Oil and Natural Gas

• Indian refiners to benefit from new regulations
• Sees improvement in gross refining margin in the second half of FY20
• Demand and supply situation to ease in the second half of FY20
• March and April might be a little volatile

Automobile

• Sees a turnaround for domestic-focussed passenger vehicle companies in the fourth quarter; expects sequential growth
• Estimates high single-digit volume growth in passenger vehicle segment
• Recommends “staying away” from two-wheeler companies
• Expects a one-time jump in commercial vehicle segment sales between June to December, led by BS VI
• Says demand for the commercial vehicles could slip in FY21

Non-banking Finance Companies

• Expects NBFCs with better credit rating to benefit going forward

Consumer

• Expects food inflation to bounce back in the second half of calendar year FY19
• Consumer staples to benefit from inflation

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