Getting Charged Up!

The recent Indian School of Business (ISB) Capital Market Conclave held in Mumbai to discuss the roadmap to achieve 10 per cent GDP growth rate was attended by some of the prominent names in the field of business. They all unanimously agreed that if India has to achieve its dream of 10 per cent growth in GDP, various socio-economic reforms are a must. For example, one of them argued that implementation of Goods and Services Taxes (GST) regime at the earliest can add 2 per cent to GDP growth rate while social reform initiatives such as Swachch Bharat Abhiyaan and women’s safety initiatives can add 1 per cent to GDP growth.

Although these things were known for a while now, what has changed in the last six months that makes it more achievable and doable now is the new regime at the centre that is more stable and quite focused on growth and development of the nation. The recent reshuffling and expansion of the cabinet by the government clearly speaks a lot about the intent of the government towards implementing the required reforms to achieve the dream growth rate. The new ministers, be it Manohar Parrikar, former Goa chief minister and now the defence minister, or Suresh Prabhu were not even members of parliament and were yet handpicked and given ministerial berths at the centre to expedite the process of reforms.

All these political changes are being well-reflected in the stock market, which is touching a new high every passing week. The BSE Sensex has already crossed the psychological level of 28,000 and I believe it is quite sustainable. Historically, November and December have remained good for the stock market and if we do not see major hiccups in the international market we may easily close the year above the 28,000 levels.

We are touching these new highs despite the not so encouraging second quarter results of FY15. We are already past the halfway mark of the current result season and the earnings are barely tracking the expectation. Unlike the past, there are few quarters where we have seen decent number of upgrades; there are not enough signs of earning upgradation; and there are more downside surprises than upside surprises in this result season so far. Overall as the demand in the economy remains muted, the increase in topline of the companies has remained soft and has risen in lower double digits; nevertheless, the bottomline increased more than 25 per cent. This was led by higher other income and lower extraordinary.

Notably, unlike the previous quarters, the strong rupee hampered revenue growth of export-linked sectors while a weak monsoon hurt the agri-linked sectors. Sectorally, we have seen telecom, cement and pharmaceutical post a good set of numbers while media, financials including banks, and energy have seen a little disappointment. What is noteworthy in this result season is that we have found an improvement in the return on capital employed, which shows better utilisation of capital.

Since little more than 50 per cent of the listed companies have come out with their results till now, we may see some of the facts mentioned above change as new results are announced. Therefore in our cover story we have analysed only those sectors where sufficient number of companies from a particular sector have announced their results in order to predict the trend in that particular sector. Therefore we will continue with our sector result analysis in our next issue too.

As the stock market is trading at an all time high, all the lower hanging fruits are already plucked. The next round of money will be made by identifying and picking up the right stocks with good growth rate, available at reasonable price. Beside this many investors follow the smart money i.e. where the FIIs are investing. In our special report we are recommending five companies from the BSE small-cap that have seen consistent increase in FII investments since the past three – five quarters. The prime reason behind considering three – five quarters is that it was the time when questions were being raised about the possibility of FIIs coming to Indian markets. Hence, despite a lot of confusion and cautiousness these companies were able to attract the interest of the FIIs, which speaks volumes about these companies.