Hold on to equities, look for a rebound

Nov 19 2012, 09:37 IST
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SummaryThose already invested might be better off holding on to their shares.

at low base, metal prices have come down, banks have high provisioning and statistically it will not go up and on top of it a rate cut will help the companies significantly." Crisil research too is of the view that the downward trend in gross earnings Ebitda is bottoming out. "Ebitda has bottomed out and is primarily driven by softening of commodity prices and weak rupee continuing to support the export oriented sectors," said Mukesh Agarwal, president, Crisil Research.

Earning upgrade still some time away

Most experts are of the view that over the last 18 months, analysts have downgraded earnings quarter after quarter. While much of it has been a fall out of the slowdown in the economy, all negativities have been factored in the net profit estimate right now. So any positive surprise on the earnings front will have an impact on the markets expectations and in its forecast for future. But even though the declining trend in profit growth may be nearing its bottom, experts feel that the time when earnings will surprise the analysts and which will trigger the earnings upgrade is still sometime away. "It will depend on interest rate cycle, government policy and investment cycle," said Dua.

In a recent report Kotak Securities also kept to the view that there are no signs of upgrade right now. The Kotak report slashed the earnings forecast for 2012-13 from 7.5 per cent at the start of Q2 FY'13 to 5.8 per cent now. "2Q FY'13 results provided no evidence of earnings upgrade. Net profits beat our estimates but largely due to higher other income in few cases and a large one off item in case of NTPC," said a report by Sanjeev Prasad of Kotak Securities.

The weakness in the corporate performance is also reflected in the revenue and profit expansion of the BSE 100 companies (excluding IOCL, BPCL and HPCL) over the last seven quarters. In the 21 month period, the net sales of these companies have grown by 33 per cent from Rs 4,03,006 crore in the quarter ended December 2010 to Rs 5,35,728 crore in September 2012. On the other hand, the net profit for these firms have expanded by only 17.5 per cent in this period from Rs 59,928 crore in Dec 2010 to Rs 70,454 crore in September 2012.

The way ahead

In the four month period between June and September 2012,

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