October has ended on a thumping note for the market, with a 2,500 point monthly gain for the Sensex. It also marks the end of yet another earnings quarter. Time to look back and analyse if the fundamental underpinnings of this market are still in place. The mid-cap universe is diverse and there are always spectacular outperformers and big disappointments. The Nifty is easier to summarise and also gives us a good sense of whether red flags are popping up.
Objectively speaking, you would have to say there have been more hits than misses in this quarter. The surprises have come from sentiment leaders like Reliance, Larsen & Toubro, DLF and ICICI Bank. There is every reason for earnings estimates to be raised for these companies. In telecom, Bharti and Reliance Communications have both turned in solid numbers while MTNL, VSNL and Idea have fallen short. Banks have been mixed: while the private banks have delivered superb numbers the larger state-owned banks have been a bit disappointing. The underperformers have not done much to turn the tide in their favour. Consumer goods struggled with Hindustan Unilever being the biggest letdown. Pharmaceuticals had a few sparklers like Glenmark and Cipla but nothing to blow the lights out in the large-cap names. Automobiles were a tad better than expectations but the terrain remains rough out there.
In sharp contrast, the infrastructure space delivered numbers that did nothing to dent the confidence reflected in their lofty stock prices. Among the stronger sectors, if there was one disappointment: cement, particularly big names like ACC and Ambuja.
Metals turned in a good performance in a difficult quarter, the way Sterlite and Hindalco negotiated a tough pricing environment was quite commendable. Real estate had a decent quarter, too, with marquee names like DLF and Unitech delivering robust sequential growth.
Overall for the Nifty or Sensex, the earnings per share estimates for 2008 should actually go up as heavyweights like Reliance Industries, ONGC, ICICI Bank, Bharti and Larsen & Toubro have all beaten expectations. The bigger picture seems in place. Is there anything in this earnings season to break the back of this momentum surge? To me the answer is no. This has no reference to valuations and external events, those we leave to the market to decide and react to.
Udayan Mukherjee is Executive Editor, CNBC-TV18