Maintain stock specific approach
Pressurized by weak global cues the equity markets slumped in the passing week. But last two sessions of trade helped markets to pare losses significantly. The markets remained under pressure during first three sessions of trade as investors turned risk averse on sustained fall in crude oil prices, implying weakness in global demand and concerns over political uncertainty in Greece. But positive statement from the Finance Minister over the health of domestic economy and better than expected result from the IT major, Infosys, helped index to rebound in the last two sessions. On earning front, markets in the coming week would be eyeing results from big names like IndusInd Bank, Bajaj Finance, Yes Bank, Bajaj Auto, TCS, Axis Bank, Reliance and Wipro among others. Also participants will be tracking key economic data i.e. Index of industrial Production (IIP) data for the month of October and Consumer Price Index (CPI) data for the month of December scheduled to be released on January 12. This will be followed by Wholesale price index (WPI) data which would be released on January 14. As earning season has began it is not going to be an easy task especially for the traders to make money due to excessive news flow and events taking place simultaneously. Broadly, we expect Nifty to uphold sideways bias and trade within 8100-8450 range. Erratic move in stocks during pre and post result announcement could result in serious capital depreciation if not dealt properly. So traders are advised to maintain stock specific approach in coming weeks and religiously follow risk management rules to avoid any unmanageable loss. Investors should maintain a balanced portfolio in such a market situation and add defensive like FMCG and pharma to hedge their long only portfolios.
Jayant Manglik, president-retail distribution, Religare Securities
Earnings outlook good for banks, telecom, FMCG
Sectors that we expect to lead in profit growth during third quarter 2014-15 include banks, FMCG, Telecom, Retail, and Energy (assuming entire subsidy disbursement in Q3). Laggards according to our estimates are Capital Goods, Cement and Power. Stable margins and higher treasury incomes will boost profits of banks in third quarter while FMCG sector will benefit from lower raw material costs. The telecom industry looks a good bet because of strong data traction. Likewise energy companies are expected to report better earnings due to better crude realizations although refiners could be hit by high inventory losses (we have assumed entire subsidy payment in third quarter.)
Improving asset-liability management
ICICI Bank has continued to demonstrate its prowess in improving asset-liability management (ALM) by maintaining robust liability franchise, managing asset quality risk along with conserving capital. Retail segment has continued to show healthy growth while SME and domestic corporate books have seen calibrated growth. Its asset quality has stabilized while fresh loan impairments have also remained within the management’s guidance. The stock trades at reasonable valuation after stripping the value for subsidiaries. We have marginally revised earnings upward for FY15/16E along with assigning higher multiples for its core business as well as subsidiaries on improving macros. We reiterate buy on the stock.
Good revenue, profit growth expected
Infosys reported robust third quarter 2014-15 earnings led by growth in the US, India, BFSI, lifesciences, application maintenance and IMS constant currency segments. Consolidated IT services grew 0.7 per cent in the quarter ended December, 2014 led by volumes. The profit margins improved 61 bps to 26.7 per cent while net income stood at Rs 3,250 crore vs Rs 3,232 crore. The company’s healthy volume growth, client additions and improving operating metric will aid growth in coming quarters. Infosys is emphasizing on the massive embrace of design thinking in renewing existing offerings such as consulting services, product engineering and Finacle. We expect Infosys to report revenue and EPS CAGR of 8 per cent and 14 per cent respectively in FY14-16E. The stock is valued at 20x its FY16 estimated EPS.