* Yet another weak quarter. 4Q FY15 was yet another weak quarter for CNX Midcap Index companies with just 5% revenue and EBITDA growth. The weak growth was uniform across sectors with single-digit revenue growth in all of them. Relatively speaking, there were some signs of revenue growth pick-up in staples, industrials, and utilities and some margin improvement in consumer discretionary and utilities.
* Midcaps are faring slightly better vs. largecaps. Midcaps did better, both in terms of revenue and EBITDA. This has been the case for the past two quarters. Industrials and discretionary midcaps have been doing relatively better for a few quarters now, relative to their larger peers.
* Earnings downgrade cycle continues; most sectors have rerated relative to their larger peers. CNX Midcap Index FY16 consensus earnings continue to be cut – FY16/FY17 earnings have been revised down by 5/6% YTD. The cuts have been almost across all sectors, with materials, financials and industrials witnessing the sharpest cuts. Midcaps have outperformed larger companies over the past 12 – 18 months and now trade at a slight premium. While many midcap sectors have rerated versus the respective largecap sector, the relative re-rating has been the highest for staples.
* Staples, industrials, consumer discretionary, and utilities are showing relatively better growth. Staples, however, have also rerated considerably. While overall employee cost increase was relatively muted at 10%, it stayed far ahead of the overall top-line growth thereby impacting margins this quarter. Consumer staples, discretionary, financials, healthcare and materials recorded double-digit increase in employee expenses this quarter.