We are at the mouth of one of the most controversial US elections ever. Indian markets could be affected by any significant move of the USD due to risk-aversion, if the results are too close/ narrow, which can question the electoral process or encourage vested interests to start various investigations post-elections. Meanwhile, please read out GST reports on Consumption and Auto on pages 12&18after the GST council announced the 4 slabs of rates. While there are many unclear areas which are expected to be clarified in the notifications expected by Nov 10, the rates for auto are underwhelming vs. expectations while consumption stocks with large unorganized sectors would benefit.

Of the 92 companies from our universe that have declared results so far, YoY growth for PAT and EBITDA has been ~200 bps and ~250 bps above expectations at 9% and 10% respectively while revenue expectations have been in line at 5% YoY growth. Sectors which surprised are Autos, driven by robust volume growth in 2W on the back of strong festive sales and Telecom, mainly Bharti Airtel which maintained its India wireless EBITDA margin despite Q2 being seasonally weak. However, Banking earnings were impacted due to higher slippages from corporate lenders.

Sensex consensus EPS estimates for FY17 have seen downgrade of~1%, while FY18 was cut by ~2% during the results season so far.  EPS growth for FY17 currently stands at 11% (Rs 1,508) and FY18 at 19% (Rs 1,788).

We are still in the midst of the earnings season. However, it may be useful to know the early trends each of our sector analysts are seeing, from results and concalls so far. Refer overleaf for comments on results summary, key trends and quick insights for each sector.

Result summary, trends and quick insights from analyst on results

Agri-chem

Domestic agrichem market has weakened due to lower pesticides off-take in July-August on the back of high inventories and low pest occurrence. Overall, the industry growth is likely to be at ~10% in FY17 (in line with our expectations) vs. ~15% expected by the street in June ’16. Expected normal Rabi season augurs well for pesticides industry.

Auto

Volume growth: 2W companies indicated festive sales are robust with double digit growth and expect trend to continue in H2. CV players are optimistic of growth in H2 FY17 as low base kicks in and pre-buying on change in emission norms

Commodity cost to see uptick: Companies are seeing some increase in commodity prices, and expect impact in H2FY17. Many OEMs have taken price hikes in Q2 to pass on the impact

Banking

Retail banks (HDFC/IIB/Kotak) and Yes Bank continue to grow significantly above industry while maintaining asset quality and margins. CASA traction was significant for banks offering higher SA rates while NBFCs benefited from a benign interest rate environment and ample system liquidity. Corporate lenders continue to face asset quality pressures while guiding for a stressful H2. Watch out for impact of lower G-Secs yields/ one time gain impact/ asset quality trends in pending PSU Banks & ICICI results

Cement

Cement prices moved up by Rs 40-50 per bag in Maharashtra and Rs 20 per bag in North Karnataka since end of Q2FY17. This, along with higher volumes, will improve EBITDA per ton December quarter onwards, for companies operating in the region as severe drought last year in the region affected the cement volumes and realization in FY16 and Q1FY17.

Consumer

Stress in rural and no pickup in urban market places continue to impact topline of consumer companies. In a muted demand environment, corporates have maintained consumer and trade promotion, but demand uptick remains elusive. Volume growth decelerated further with 1% decline for Hindustan Unilever (vs. expectation of 2-3% growth), 4% growth for Colgate (vs. 5-6%) and 3.4% growth for Marico (vs. 4-5%). However, aided by higher promotions, Dabur volume growth was in-line at ~4.5%. Price and mix changes were restricted to low–mid single digit (increase of 0-6%) for most staple companies. Paint companies maintained low double digit volume growth in decorative paints (Asian Paints, Akzo Nobel and Kansai Nerolac). QSR companies reported steady improvement in SSSg, with 6.5% SSSg for WLDL (vs. our expectation of 4%) and 4.2% for JUBI (vs. expectation of 2-3%, driven by higher consumer promotions).

IT Services

Clients are cautious on discretionary spend. Traditional spend areas (ERP, ADM etc) are weak and seeing pricing pressure. Client budgets continue to see shift from ‚run the business‛ to ‚change the business‛. Clients continue to focus on cost efficiency, vendor consolidation, hyper automation and simplification. Spends are being channelized in digital technologies, cognitive and artificial intelligence-led business transformation. Core vertical of BFSI remains weak.

Managements believe current demand environment is cyclical (not a structural issue) with increasing digital spends, clients demanding operational efficiencies, real-time data needs and significant investments in cloud/ design/ gamification, analytics/ artificial intelligence/robotics etc.

Indian IT players will continue to make business investments in digital technologies and differentiated delivery models to drive deal wins, which will impact margins in the short term

Media

Ad spends from FMCG and E-commerce players moderate, but industry expects higher spends from sectors like telecom, auto to compensate for the same. Initial signs of uptick in subscription revenues from phase III subscribers visible. TRAI’s draft content pricing regulations will be positive for Distributors, effective implementation of the same remains the key – stakeholders to share feedback by Nov 15th (revised from Oct 24th earlier).

Oil & Gas

LNG imports: LNG prices (spot and term) have continued to remain muted, which has led to sharp increase in LNG imports in India. For instance, LNG import in Sept ’16 stood at 1.74 mntn vs. average monthly import of 1.6 mntn in Q1FY17

Refining margins: After weak Aug/Sept, GRMs recovered sharply in late-Sept/ Oct as margins recovered across product categories. Margins are likely to remain firm as (a) outage of Colonial pipeline in US may prompt European cargos to divert from Asia to US, (b) rising Chinese PMI may lead to higher demand of middle distillates

Pharma

Domestic Formulations: Have seen mixed performance, with Alembic (19% YoY growth) & DRRD (14% YoY growth) reporting better than industry growth of ~11% while Cadila (9% YoY growth) and Glenmark (11% YoY growth) reported subdued growth

US Business: Continued to remain weak across, however companies with lower FDA overhang & incremental approvals (Glenmark) or undertaking a strategic shift in the business model (Alembic) reported better than expected performance

Margins: Increasing competition and higher R&D spend continued to put pressure on the margins

Telecom

Data revenue growth was moderate (~2% QoQ for Bharti and ~4% QoQ for Idea) as the volume growth was offset by significant price cuts with realization dropping ~10% QoQ for both with RJio launch

Q2 weak seasonality and competitive intensity in the voice segment led to fall in voice realizations (Bharti down 3% QoQ; Idea down 3.5% QoQ. Voice volumes in Bharti were a positive surprise

Margin pressure is expected to continue as accelerated network expansion (with additional spends to leverage the spectrum acquired in the auctions) and higher subscriber acquisition will exert a drag.