Equities Rise & Rise

There is a disproportionate spotlight on developments overseas in the recent past, mainly in the light of the US elections. While we acknowledge some linkages, the primacy of local fundamentals in determining the direction of the markets cannot be stated enough. The most reasonable thing for investors to do is to focus on the good things that the local economy holds out and invest accordingly. Too much of focus on US elections may not be the appropriate thing to do. This assumes importance in the context of the actual statistical numbers which point towards a recovery in China, better levels of economic activity in India, and also positive economic conditions in many of the Asian economies, it may be a good thing to focus on these factors.

The Q2FY21 earnings season has been a positive surprise for the markets, especially given the fact that the economy was coming out of a severe pandemic led lockdown. The net sales growth for Sensex companies (for which the results have been declared till end of October 2020) came in at -6.4% and for Sensex ex-Oil & Gas and BFSI came in at 4.4%. While the topline numbers may not look too encouraging, the EBITDA numbers reflect a different picture. The expected suppression of demand led corporates to work aggressively towards reducing cost and the drive was well supported by subdued input price inflation. The EBITDA growth for Sensex came in at better than expected 38.5%.
The trend was similar for broader markets, with BSE 500 (results available for 185 companies till end of October 2020) reporting EBITDA growth of 67%. The EBITDA margin expansion for Sensex was reported at 983bps and for BSE 500 group was even better at 1132bps. The cost control measures, improving demand and supportive monetary conditions (low interest rates and ample liquidity) are expected to be earnings supportive going ahead as well.

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