The world of equities is ?surprisingly? different in various parts of the planet. That?s the learning from the profit analysis of Q1 results of 12,000 companies across the globe?from the United States to Japan in the Far East. India, for starters, hardly had a ?surprise? factor in the first quarter earnings reported by 2,750 of its corporates. It was just 0.5%. Surprise factor for a corporate/country is found by finding the percentage difference between the analyst consensus earning expectations vis-a-vis its actual reported numbers. In simple terms, it indicates the percentage of companies that have surpassed/underachieved market expectations. A lower ?surprise factor? is not a healthy indication for Indian market, as just a quarter earlier, the net surprise element was higher at 14%. A positive surprise to some extent is a positive for the equity market, since it opens up the possibility of market analysts reviewing earnings forecast on higher side and accepting higher market valuations.

US?unemployment woes

Tell-tale signs also indicate not so rosy a picture for the US and some parts of Europe. In fact, the US came as a big disappointment. After a 16% surprise factor in the earlier quarterly results season, in Q1, its figures were down to 4%. Considering that the American GDP grew at a disappointing rate of 2.4% (at an annualised rate) in the June quarter and ?double-dip? possibilities are lurking, this was expected. Corporate results were analysed for 5,084 US companies that had reported Q1 earnings so far. While oil & gas, consumer goods and financial sectors gave a positive surprise, telecom and healthcare disappointed.

Europe?a mixed bag

Similar has been the case for Spain, where the pain continues. The surprise factor in Q1 dipped to a negative 0.7% indicating that the results were below expectations. Just a month back, it was higher at 13%. Spanish utilities and consumer service sectors were a disappointment while technology and oil and gas exhibited a positive surprise. Among the PIGS, Italy and Greece still look the vulnerable lot, while things seemed easing in Portugal. Interestingly, Germany and the United Kingdom sprang a surprise this time. In the case of Germany, from a negative surprise element of 5.7% just a quarter back , corporate earnings surpassed expectations showing a 11% surprise. The newly affluent countries of China, India and Brazil continue to buy Audis and Mercedes and other luxury goods from export-focussed German companies, which to some extent is keeping its economy resilient from eurozone worries.

India?Curves ahead

So what this all mean for Indian investors ? Firstly, it means there are no clear cues of the global economy reviving, and therefore Indian investors would have to look for more quarters to decipher a secular trend, if any. A recent global fund manager survey in fact found that the spotlight of investor pessimism shifting away from China and Europe to Japan and the US. This means that global cues will continue to matter for Indian market at least for the next three-six months.

Even India Inc?s Q1 corporate earnings send out no clear signals. This time, the number of positive surprises matched those of negative. Among the 2,500 corporate earnings reported, there were in all 127 positive surprises while negative surprises numbered 135. For every Tata Motor that sprang a positive surprise, there was a Maruti Suzuki that disappointed. In all, among the Sensex companies, six reported higher than estimated profit after tax, while 13 disappointed. The rest were in line with expectations. Tata Motors, Bhel, ITC and State Bank of India were among the Sensex companies that surpassed estimates while Maruti Suzuki, Sterlite, Tata Steel and NTPC went below expectations.

Among the sectors, oil & gas, telecom and infrastructure were a disappointment while banking and auto results were above expectations. While at the net level Sensex earnings were almost in line with market expectations, the challenge now is about catching up on earnings from here on.

FE calculations suggest that from here on, Sensex earnings need to grow on an average by 25% over the next three quarters to achieve the Sensex earnings per share target of Rs 1,045. This was the Bloomberg analysts? consensus estimate before the Q1 results season kicked off. Currently, Sensex EPS is trailing at Rs 844. It has to add Rs 200 more to reach the target. Any disappointments and markets valuations are likely to take a beating. Also, given that from next quarter India Inc would lose the advantage of the ?low base?, it needs to do a lot of catching up. Expect a long and winding road from here on.