The outlook is a positive start. RIL and NIIT Technologies results will be eyed today. Oil marketing PSUs will be in focus after IOC hiked diesel prices on Thursday evening. Asian markets are upbeat. US indices gained with Citigroup Inc.’s results beating expectations and sending banking shares into a tizzy. The S&P 500 was up 1.5%, Dow Jones climbed 1.3% and Nasdaq gained 1.8%.
Reliance Industries (RIL) will announce its Q2FY16 numbers today. Crude oil prices have declined on a sequential basis from US$62.1/bbl in Q1 FY16 to US$50.2/bbl in Q2 FY16 (average for Brent) while rupee depreciated against the US$ by 7.2% yoy and 2.4% qoq. Gross under recoveries are expected to be lower substantially on a yoy basis and IIFL expects this to be compensated by government and upstream companies. Product spreads have weakened on a sequential basis as fall in petroleum product prices was steeper than increase in crude oil prices on back of weakening demand. Resultantly, benchmark GRMs declined on a qoq basis.
IIFL expects Reliance Industries to report a GRM of US$8.8/bbl as compared to US$10.4/bbl reported in Q1 FY16. Petrochemical prices too have seen a correction in line with the crude oil prices but IIFL expects the spreads to remain flattish. Crude oil production from MA-1 field and gas production from KG-D6 field are likely to see flat trends during the quarter on a qoq basis, an IIFL preview note adds.
LIC Housing Finance’s Q2 FY16 performance was stronger-than-expected with robust NII growth of 34% yoy and net profit increasing by 19% yoy. A combination of brisk loan growth, margin expansion and stable credit cost should drive significant earnings growth for the company over the next couple of years. RoA is estimated to improve materially from the current cyclical low of 1.3%. Valuation at 2.2x FY17E P/BV remains attractive in the above context.”
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