India's economic recovery is still quite 'patchy', as only parts of urban discretionary consumption is showing some strength, and the demand outlook is also subdued, says a report.
According to the report by Kotak Institutional Equities, the ongoing results season has not provided any signs of an incipient economic recovery, and management outlook on demand for the next 2-3 quarters is generally subdued.
"We note that economic recovery is still quite patchy with only parts of urban discretionary consumption holding up well," the report said.
It further noted that the July-September quarter volume data was muted for a number of cement and consumer staple companies. "We believe volume growth will become very relevant as a driver of profits as the gross margin expansion-led earnings growth is largely over," it added.
Overall, net profits of the Nifty-50 companies that have reported so far have grown 7.3 per cent year-on-year and exceed Kotak Institutional Equities' estimates by 5.4 per cent.
Regarding fund flows, the report said that they are expected to be less supportive.
"Emerging market flows have reversed in the past 2-3 weeks, perhaps reflecting outflows from passive macro funds on the back of higher global yields and a stronger US dollar. We do see scope for further rate cuts in India (50-75 bps by January-March period of 2018)," it added.
'Monetary policy committee (MPC), which has three members nominated by the government and the rest from RBI, lowered repo rate to 6.25 per cent from 6.50 per cent on October 4.
The next meeting of the MPC is scheduled on December 6 and 7.
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