FIIs Continue to Press the Sell Button

Photo: Money Control

According to the Reuters, February 17, 2015:

Earnings of India's largest companies fell more than expected in the latest quarter, adding to scepticism over a stock market rally that started in early 2014 and official figures showing the country's economic growth outpaced China's. The combined net income of 100 firms with a market valuation of more than $100 million dropped 6 percent in the three months ended in December from a year earlier. That compares with a 0.5 percent rise expected by analysts covering the companies. It was also the first decline in at least 18 quarters since Thomson Reuters started compiling the earnings data.

It was the third consecutive quarter that profits had failed to match up to expectations, meaning companies have disappointed each quarter since Prime Minister Narendra Modi was elected in May last year, a victory that drove share prices to record highs. More than half of Indian firms undershot earnings forecasts, including some of the biggest: Reliance Industries, Tata Motors and bellwether engineering firm Larsen & Toubro. The stakes are high for Modi's government, due to present its budget later this month. 

Meanwhile, Kotak Securities Ltd wrote on 17 February. 2015 : 

3QFY15 results were disappointing and underlying trends in volumes and NPLs showed no signs of recovery. We see downside risks to our FY2016 estimates with both volume and profitability likely to disappoint. The market looks expensive, as India’s improved macro position is yet to translate into earnings. The upcoming budget and budget session will be critical given that oil prices have moved up sharply in the past few weeks. 

And Finally, the Firstpost wrote on February 11, 2015: India growing faster than China is like saying Bihar's growth quicker than Gujarat. The repport goes on to say: 

Explaining this jump in growth, a Crisil Research note points out: "The Central Statistical Office’s explanation for the upward revision in GDP for previous fiscal is premised on improved efficiency. For instance, the manufacturing sector is generating more value-added from the same level of input. This has led to faster growth in manufacturing GDP which is a measure of the value added." The jury though is still out on the possible explanation for this jump in economic growth. The high frequency data doesn't explain this jump. Car sales remain muted. Tax collections have seen slow growth. Corporate profitability isn't anything to write about. The number of stalled projects continues to remain huge. Exports are on a decline. Also, it is worth remembering that the numbers highlighted above are real numbers, unlike the GDP which is a theoretical construct.

The over-hyped Narendra Modi government is yet to deliver on the plate and therefore the FIIs are giving thumbs down, to their outlook about India.