LOOKING BACK, LOOKING FORWARD

We have entered into mid-January and the Q3FY22 earnings will soon become a deluge. Unlike the first and to some extent, the second quarter, this quarter earnings holds the promise of a lot of good tidings. But the underlying shadow of the rising Covid cases across the India, the sense of impending lock-downs and restrictions does not paint a great picture of Q4. Though we all have learned to live with the virus, back to WFH and curfews, the sense of unease is back. For us today though on Dalal Street, the earnings are all that will matter.

So, as we begin this new week, look at these indicators – it will give you a fair idea what the market is thinking…

Moody’s put out its macroeconomy economic outlook and said that the damage to the Indian economy will remain restricted to Q1 as the current restrictions are more targeted, localized and less stringent. Also with consumers adapting, it expects that mobility and economic activity will likely accelerate in the second half of year as pace of vaccinations picks up. 

Some sectors are bound to show the stress as consumers will once again prefer to conserve cash and buy only essentials – consumer durables and auto sectors could show some pressure while pharma, construction, infra and IT could be the winners. TCS, Wipro and Infosys will set the mood when all three biggies announce their Q3FY22 earnings on the same day, 12^th Jan.

What we need to watch out for in Q3 earnings - the amount of de-leveraging done and how debt costs have come down. Cost management will be key in Q3 earnings and keep a watch on the cash flow – that will indicate the presence or absence of stress. As raw material costs rise, companies resorted to cleaning up their balance sheets, putting off aggressive expansion and capex plans. FY21 has essentially been about deleveraging and let’s see if this shows up in the earnings of Q3FY22.

This week will be all about macro data too. IIP for Nov will come in on the 12^th of Jan and so will CPI for Dec. Then we wait for WPI. The market, over the past few months has stopped paying much attention to these monthly data and this month too, unless it is too spectacular or too terrible, it will be business as usual.

All action will be stock specific and particularly, earning specific, which will percolate down to sector wise allocations by fund houses. But the dark shadow of the virus remains. As the numbers multiply, the fear factor will only go up. A complete shut down will not happen, that’s for sure. But we will see restrictions and once again, all customer facing sectors will face the brunt- hotels, airplanes, gyms, theaters, malls. People will once again conserves cash. WFH has now become a habit and that means work, especially for IT sector will continue as usual. But overall the moods will remain a bit low but hopefully markets will find reasons to make itself and all of us happy!