Still in a bear hug: Benchmark indices driven by a handful of stocks, large swathes of market under-performing

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Published: October 21, 2019 5:50:47 AM

India’s GDP grew at just 5% year-on-year in the April-June period, the slowest growth in 25 quarters, while industrial production in August plunged to the worst in six years, contracting 1.1% year-on-year.

Benchmark, bear hug, handful of stock, large swathe, market, market news, cumulative debt, NBFC, India, GDPEarnings estimates have been consistently downgraded for about four years now and there could be more with the corporate ecosystem still not out of the woods since the finances of several NBFCs remain fragile.

While the benchmark indices have fared well over the past year, the moves have been driven by a handful of stocks with large swathes of the market under-performing. That’s not surprising, given most companies have turned in poor results in a sharply slowing economy characterised not just by sluggish investments but huge demand compression.

India’s GDP grew at just 5% year-on-year in the April-June period, the slowest growth in 25 quarters, while industrial production in August plunged to the worst in six years, contracting 1.1% year-on-year.

Earnings estimates have been consistently downgraded for about four years now and there could be more with the corporate ecosystem still not out of the woods since the finances of several NBFCs remain fragile.

An analysis by Jefferies, of approximately 3,000 companies, showed that of a cumulative debt (ex-financials) of Rs 33 lakh crore, 11% is rated  ‘A’ while 14% is rated ‘BBB’ or below.

The analysts believe that ‘A’ rated companies are those where there is meaningful divergence based on the current interest coverage and debt serviceability ratio and are prone to further rating downgrades. Importantly, the interest coverage ratio for this entire group declined to about 5.6x in Q1FY20, the lowest in the last 14 quarters.

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