We hosted key business heads of Bajaj Finance (BAF). Discussions with heads suggest competitive intensity has gone up in LAP, salaried PL, SME. BAF will however continue to grow at 25%+ for next 3 years led by strong customer acquisition and cross-sells. BAF’s internal assessment checks ensure proactiveness in identifying potential stress. New geographies and product lines will compensate for conscious growth slowdown in LAP and geographies (Delhi/NCR, Punjab), which management identified as stressed. Tailwinds from operating leverage will follow (reduced costs & turn-around time as recent hires and tech spends bear fruit). A diversified loan book (20+ products) and a switch to the direct-sourcing model (in LAP, self-employed home loans) insulates it from asset quality and growth shocks, while continuously improving data-analytic models and nuanced customer segments mitigate adverseselection risk.

Q1 earnings for 146 companies (ex OMCs) from our universe have been better than expected by ~300 bps at 1% YoY. However excluding major drags (TAMO, PSBs and Resources) earnings grew by a healthy 14% YoY (vs 10% estimated) the fastest in past 8 quarters. EBITDA growth (ex OMCs) was in-line and grew by ~13% YoY on the back of lower commodity prices. Earnings for 26 Sensex companies saw a YoY decline of 2%, but Sensex ex-TAMO growth is 7% (vs 5% est).

Sensex consensus EPS estimates for FY17 & FY18 saw marginal downgrades of 60 and 80 bps respectively during Q1FY17 results season thus far. However, since the beginning of Apr-16, consensus EPS estimates saw cuts of 1.7% for FY17 and 1.2% for FY18. EPS for FY17 is currently at Rs 1,599 and FY18 at Rs 1,898.

Overall, there are too many macro cross-currents, with India’s growth poised alongside abundant global liquidity, against a possible temporary suck-back from EMs to US if there’s a Fed rate hike in September or December. Hence, it’s best to be bottom-up now, with sectoral stances being OW in Auto, OMCs, and UW in Telecom, FMCG and IT.