In this newsletter, we will review the corporate results for the quarter ended June 2021 as also some other interesting data coming out of the economy. For corporate results we looked at the non-financials in the BSE-500, most of whom have now announced results for the quarter ended 30 June 2021. Since the June quarter last year was a washout because of the nationwide lockdown, we looked at a 2-year compound annual growth rate (CAGR). Revenues for the median company in the sample set are up at a 7.2% CAGR for the Jun-21 quarter – this compares with 1.9% for the Dec-20 quarter and 5.1% for the Mar-21 quarter. As can be seen from these numbers there is a gradual improvement over the quarters. The 2-year CAGR for Profits before Interest and Tax (PBIT) for the median company is at 14.3% for Jun-21 – this compares with 12.0% and 15.4% for Dec-20 and Mar-21 respectively. There is a clear improvement in profitability and the 2-year CAGR is actually slightly ahead of historical trends and is somewhat contrary to what one may expect for a quarter when the country was facing a deadly second wave of covid and much of the country was in a lockdown.
The BSE publishes data for the earnings per share (EPS) for the BSE Sensex on a regular basis – we are using Sensex data instead of Nifty because NSE has changed its data set from unconsolidated earnings to consolidated earnings starting from 31-Mar-21 and this has made the data set not comparable with prior years. The EPS for the Sensex on 28-Feb-20 (ie pre-covid) was 1650 while the latest reading is at 1901, which is a 15.2% increase. It appears that both, for a narrower set of large companies (Sensex), as well as a broader set (BSE500) earnings are growing at a healthy pace.
The data on tax revenues of the Central Government for the quarter ended 30-Jun-21 also tells an interesting story. Gross Tax Revenue for the quarter ended 30-Jun-21 is up at a 2-year CAGR of 15.2%. GST collections for the June 2021 quarter are up at a 2-year CAGR of 1.6% (for the month of June 2021, the number is 6.8%). Corporate tax revenue is up at a 2-year CAGR of 32.3%, income tax revenue is similarly up 12.5%. These are very impressive numbers and we shall wait for confirmation of this in the coming quarters.
The Nifty has been scaling new highs for the last several months and ends August 2021 at yet another life time high. The broader market indices such as the mid cap and small cap indices too have been exhibiting strength. The strength of the market has puzzled many observers, particularly in the context of the pandemic which is still perhaps not behind us. Seen now in the context of the improving earnings picture as also the improved tax revenues of the government, this perhaps could be one of the reasons for the strength in equity markets. What has also kept the market buoyant is the very accommodative monetary policies followed by the RBI as well as other global central bankers.
We have been using the strength in the market to pare positions in stocks that have become more expensive on their historical valuation ranges and our attempt is to look for other stocks in our high-quality universe which may be available at reasonable valuations. If we are unable to find enough attractive investment opportunities, it results in cash accumulating in our portfolios. We intend to continue with this discipline.