India's top IT companies have shown a hiatus between their performance on the bourses in the pandemic period and earnings growth. The combined market cap of the top five IT companies - Tata Consultancy Services, Infosys, Wipro, HCL Technologies, and Tech Mahindra - is up 87 per cent since the end of March 2020. In comparison, the benchmark BSE Sensex is up 68 per cent during the period. So the industry beat the broader market by a big margin in the last one year.
sharper-than-expected economic recovery back home, analysts say, can fuel a further rally in domestic cyclicals, industrials, and financials as global central banks continue with their easy money policy.
Analysts attribute this withdrawal trend to the nervousness ahead of US presidential elections and the fact that the markets raced ahead even as the economic recovery remained fragile back home.
BSE-listed companies' market capitalisation reached Rs 197.7 trillion on January 21, against India's nominal GDP of Rs 190 trillion during 12 months ended December 2020.
The divestment process, however, will not be an easy affair as there are multiple stakeholders, including the employee unions, whose concerns will have to be addressed.
Analysts expect firms to shift focus to online platforms to boost sales in these Covid-19-impacted times.
'Most Indian logistics firms do not have the facility to store and transport COVID-19 vaccine right now.'
Auto companies are now grappling with a slowdown in sales, triggered by pent up demand due to the COVID-led lockdown easing a bit and supply-side issues for raw material.
Analysts, however, suggest investors remain selective on realty stocks and buy only where there is revenue visibility and a credible promoter backing.
This is first time in 25 years that a benchmark equity index in India is trading at a P/E multiple of 40x or higher.
Rs 1,000 now buys $13.5 against $14 a year ago.
A weak economy coupled with rising Covid-19 cases and inflation that is above RBI's comfort zone, geopolitical developments, and upcoming India Inc's second quarter results for FY21 could impact sentiment, analysts say.
Analysts attribute the surge to a host of factors, particularly the interest shown by the retail investors in these two market segments.
Experts point to the higher contribution of rural from the north for the growth reported by the region, a point endorsed by companies who've been pushing their presence aggressively there.
There is positive correlation between crude oil prices and Indian equities and investors can expect more upside after the recent rally in Brent crude price.
After Maharashtra, analysts expect more states like Karnataka and Haryana to slash stamp duty rates. However, analysts, do caution that it's still a long road to recovery for the realty sector.
Though most analysts expect the global central banks to keep the liquidity tap open, valuations of Indian markets, they say, are beginning to look stretched. Against this backdrop, they remain cautious, with some even expecting a minor correction from here on.
This year, the combined net profit of 24 index companies, which have declared their June-20 numbers, has declined by 37 per cent year on year, while their revenues, including other income, is down by 21 per cent YoY so far.
Portfolio returns, say analysts at Morgan Stanley, are more likely to be driven by bottom-up stock-picking rather than top-down macro forces.
The combined profit before tax of 748 companies, which have declared their results for Q1FY21, is down 46 per cent YoY. Their net sales went down by a quarter as the Covid-19 lockdown led to a sharp fall in economic activity.
The S&P BSE Small-cap index has recovered 26 per cent as compared to a 23 per cent rise in the S&P BSE Sensex.
India Inc's cash pile was up 13.8 per cent last fiscal year, thanks to a combination of higher profits in sectors such as IT and fund raising by top companies such a Reliance Industries, Bharti Airtel and Tata Motors, among others.
While sales momentum from rural areas may last another three to six months, sales growth in urban areas could stage a comeback by next year's June quarter as people learn to live with the coronavirus and economic activity gradually improves in the cities.
The trend in corporate earnings suggests that index earnings could fall to the levels last seen in early 2014.
Not surprisingly, equity investors are bidding-up stock prices across sectors and the broader market is now more valuable than pre-Covid levels.
The proposal to increase public float, hike income tax surcharge, move to tax share buybacks and lack of stimulus to shore up economic growth has hurt investor sentiment.
Auto, pharma, IT, chemicals among sectors with significant reliance on UK and European nations with Tata Motors, Motherson Sumi, Tata Steel, TCS, Wipro, Infosys and Tech M among key names.
In three of the past four years, 10-year returns have been 10 per cent or lower, making equity unattractive, compared to other asset classes.
In the past two months alone, four companies have garnered a cumulative Rs 22,400 crore via this route.
Traditionally, most PSUs have been cash-rich, which added to their value. However, the government has been tapping regularly into their cash resources to boost revenue for the exchequer
This amount does not include losses suffered indirectly through investment in mutual funds (MFs) and insurance companies.
Gold, which was hovering around $1,321 an ounce in January 2019, has already breached $1,600 per ounce in the past few sessions to a seven-year high.
Low home loan rates by banks could put large players in an advantageous position over smaller non-bank players, believe analysts.
It has Rs 20,500 crore of standard stressed pool outstanding as of June 2018. Thus, the entire stressed book (net NPAs and standard stressed pool) is nearly two times its net worth.
'The recent price hike would only be beneficial if the airlines continue to operate at 80 per cent airline capacity. An increase towards 90 or 100 per cent airline capacity would again add pressure to the fares as demand remains muted. Also, we are in the fourth quarter of the fiscal year which is a seasonally weaker quarter,' says an analyst.
The Sensex is on course to ending calendar year (CY) 2019 at a price-earnings (P/E) multiple of 29x, the highest in 25 years. Current valuations are, however, lower than those seen in the early 1990s. The Sensex has risen close to 14 per cent in the last 12 months, while the index underlying EPS dropped 6.7 per cent during the period.
The polls are being viewed as a run-up to the general elections scheduled for May 2019 and will test the popularity of the government and its policies amid rising crude oil prices
Automobile company Tata Motors, metals and mining major Vedanta, oil marketing firm Bharat Petroleum Corporation (BPCL), private sector IndusInd Bank, and two-wheeler major Bajaj Auto have witnessed their market cap slip below the Rs 1-trillion mark this year.
Market cap of government companies has remained unchanged in the past 8 years.
Out of 11 companies that got listed in 2019, nine have outrun the market by gaining more than 10 per cent against their respective issue price.
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