>4Q09 EARNINGS TRACKER 2: LIKE THE MOOD…BETTER (CITI)

■ Flat so far, but better than modest expectations — About two thirds of India’s biggest companies have reported 4Q09 earnings so far, profit growth has been flat yoy (lowest in seven years), but ahead of modest expectations (-5%). This trend is consistent across Sensex companies (21/30), and across Citi’s coverage universe (80/138), but on a broader basis 294/500 companies have done better, growing profits 8% yoy. Mixed performance across companies with 39/80 beating expectations, 29 lagging, and 12 in-line. Bottom-line the 4Q results are a little better than expected, and may be contributing to the improved mood.

■ Sales slacken further, while margins hold out (again) — Operating trends have tracked the previous quarter (3Q09), sales growth has fallen (2-3% yoy vs. 6-8% expected), while margins remained largely stable yoy and qoq. This weak demand and/or deflationary environment is a distinct negative, particularly given that margin support is likely beginning to erode, in our view. While Jan-Mar'09 could well be a ‘bottom’ quarter (from a real and market mood/confidence perspective), weaker demand vs. margin mix would make a rebound that much harder.

■ Broader market doing better than market top end — Interestingly, the broader market is doing better than bigger companies, with 294/500 companies recording 8% growth in sales and earnings. This could suggest medium sized businesses have not been hurt as much as the larger ones (big companies did better on way up), challenging ‘Conventional Wisdom’ that mid-cap businesses are more vulnerable and therefore should be valued lower too.

■ Banks and Cement lead, while Metals and Autos bring up the rear — Domestic cyclicals surprised on the upside, perhaps a result of too much caution built in, while Autos and Metals bring up the rear. The sunrise businesses of the last year, Real Estate and Retailing, do worst – falling 80-90% (not far from expectations).

To see full report: INDIA EQUITY STRATEGY