FIIs flow robust, despite disappointing earnings season: HSBC

Foreign Institutional Investors (FIIs) continued buying into Indian markets despite the lacklustre earnings performance holding up the market.

Mumbai: Foreign Institutional Investors (FIIs) continued buying into Indian markets despite the lacklustre earnings performance holding up the market.

FIIs have injected nearly USD 34 billion since January 2012, which led to multiple expansions, while earnings growth remained flat, HSBC Research said in its earning season analysis here.
In Calendar Year 2012, FIIs inflow in Indian market stood at USD 24 billion taking FII ownership to record levels.

The reform process initiated by the government since September 2012 has fuelled strong foreign inflows into India. Out of the largest 200 companies listed, foreign investors were net buyers of 145 companies in the quarter ending December 2012, while their ownership in nearly 50 companies was at record high levels, the report said.

It pointed out that the revenue growth of Indian corporates, however, turned out to be the worst in the last three years. Revenue growth came down from 27 percent year-on-year in March 2010 to 10 percent y-o-y in December 2012.

Sector wise, telecom, industrials, and consumer discretionary saw their earnings contract in the quarter ending December 2012, while defensives sectors such as consumer staples, IT, healthcare and utilities saw the highest earnings growth in the same period, it added.
HSBC report said that telecom, consumer discretionary, and materials were the worst performers.

Telecom sector saw the highest earnings contraction (-56 percent y-o-y earnings growth) mainly because of Bharti Airtel, India's largest telecom company, which posted 12th consecutive quarterly drop in net profit. Bharti's profit tumbled 72 percent to Rs 2.8 billion hit by high interest costs, forex fluctuation and tax provisions.

Consumer discretionary was the second worst performing sector missing street estimates by 23 percent, mainly on account of poor show by Tata Motors and Hero MotoCorp, the report said.

Industrial and materials were the other sectors which missed street expectation - some of the biggest disappointments in that space were BHEL, Jaiprakash Associate, Ambuja Cement, ACC, Sesa Goa and Jindal Steel and Power.

On the other side, defensive and export-oriented sectors, such as consumer staples, healthcare, IT and utilities were the best performing sectors, it said.

Private banks continues to report healthy top and bottom line growth, while public banks continue to have a poor run. Most of the big private banks, such as ICICI Bank, HDFC Bank and Axis Bank saw earning growth of more than 20 percent.

"With significant slowdown in the Indian economy, we expect overall corporate revenue to remain below par. Defensive and export oriented sectors will continue to see double digit revenue growth on the back of rupee weakness and constant demand regardless of the economic cycle.

While there is a greater risk to cyclical sectors such as metals, industrials, real estate and public sector banks," the report added.