INR weakened to an over two-year low during the week as a sell-off in most emerging market equities and currencies triggered outflows from the domestic stock market. Clearly, risks from China persist and fear of further bouts of Yuan devaluation will keep investors edgy and have an adverse impact on INR.
Moreover, there has been a pick-up in prices of primary articles lately, evidenced from both WPI and CPI. Upside risks from food articles can put upward pressure on headline inflation and exert further weigh down on the INR. It is important to note that despite falling to 2013 lows against the USD, the INR has appreciated against a broader basket of currencies and is overvalued by ~14% currently. Thus, moderate INR depreciation may actually not be so bad for India’s export competitiveness.
Infosys' results brought cheer with strong Q3FY16 earnings in contrast to TCS. Infosys achieved higher milestone in volumes, margin, operating metrics and delivery excellence in Q3, overshadowing various headwinds. We believe this momentum signals a strong delivery in Q4 and sets the base for industry leading growth in FY17.
However, Hindustan Unilever’s net sales growth of 3.2% disappointed and came in less than half of consensus estimate of 7%, but volume growth at 6% was in line with expectations. The management hinted that rural growth has softened further. Hence, underlying growth outlook for the sector remains tepid.
Note expectations from the quarterly season are quite muted and we expect zero growth in earnings along with just 1% topline growth and flattish margins for our coverage (163 cos ex-OMCs) – the sixth consecutive poor earnings quarter.