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India Strategy: Ten key takeaways from 4QFY18 earnings season

The 4QFY18 earnings season exhibited a mixed picture, with a healthy performance from the Consumption and Commodity oriented sectors marred by a drag from Corporate Banks and Capital Goods. Meanwhile, the hopes for a long-awaited earnings recovery in FY19 stay intact. Key trends of 4QFY18: 1] Good pick-up in consumption, especially rural, with improved commentaries on rural consumption trends from corporates in Auto, FMCG and Durables. 2] A sharp deterioration in profitability of PSU Banks led by higher slippages and provisions, exacerbated by the recent RBI guidelines on NPA dispensations. The value migration in favor of private banks continues unabated. 3] Lackluster performance of capex-driven sectors. 4] Cyclicals continue leading from the front, with Metals and O&G outperforming expectations. 5] After a strong outperformance by the IT sector over the past six months, we have downgraded the ratings of four companies in our IT universe this quarter.