● Quarterly Earnings:
The results season has started alright with a few Hits and a few
Misses. Most IT companies have done well on growth but not necessarily on margins.
Most Financials till now have done better on asset quality metrices. The Auto industry
which is going through a chip shortage issue might disappoint on earnings. On the
aggregate, there has been no cut in earnings.
Stock returns are driven more by earnings surprises than by growth. Anticipating
business performance vs. expectations is an important part of investing. This has
become particularly difficult now as a) the pandemic creates economic volatility, and
b) the extent of ‘pent-up’ demand is difficult to ascertain. The reopening / rebound
narrative can be used to justify a wide range of forecasts; YoY growth numbers are no
longer a benchmark / anchor.
Vaccinations/Cases: 77% of eligible population was inoculated with 1st dose
while 32% received both doses by end-Oct . All-India cases remained sub-20k even
as some states witnessed an increase post festivals . The general view now is that if
there is not any big negative surprise till say 15 days after Diwali, India may not get
any severe form of 3rd
wave as was earlier feared.
Aggregate COVID-19 daily cases have started to come down, to c.14k/day from 25k
in early October. Daily infection numbers in the state of Kerala have come down
(7DMA from 15k a day to 8k now; positivity rate is down from c.15% in early Oct to
10%+ now). India’s positivity rate has come down to 1.2% now. The 7DMA of vaccine
shots administered has increased sharply from under 2mn a day in the middle of May
to over 6mn now, peaking in September at 7-8mn. As of end-October, over 1.05bn
shots have been administered in India (c.53% of population has taken one shot+).
With fall in Covid cases, states eased restrictions by allowing restaurants to
open with 50% capacity, longer working hours etc. However, Delta Plus variant poses
a risk to phase-wise unlocking in some states.
India witnessed 99% of its long period average rainfall (normal) in 2021,
although with significant variations across regions. Kharif output (150.5mt) is likely to
be satisfactory, despite the spatial / temporal fluctuations.