INSUBCONTINENT EXCLUSIVE:
By Nupur AcharyaCorporate India is forecast to show a strong growth in profits in the January-to-March quarter, even as the banking sector
weighs on projections with its continuing struggle to clear a build-up of stressed loans.
Fourth-quarter profits for NSE Nifty 50 Index
companies will grow 10 per cent from a year earlier, according to a research report by Deutsche Bank AG
Excluding financials, the increase should be a “healthy” 20 per cent, Mumbai-based analysts Abhay Laijawala and Bijay Kumar
wrote.
Earnings have recovered steadily over the past two quarters as businesses rebound from the disruptions caused by a shock ban on
high-value currency notes in 2016 and the roll out of a new sales tax last July
Investors hope the pick-up will cushion India’s $2.2 trillion market from external risks including the potential for a trade war that’s
rattled global equities.
“I don’t see a huge pause in the markets right now, unless and until there is increasing evidence that earnings
growth is not coming,” said Ajay Tyagi, executive vice president at UTI Asset Management Co
“I’m not in the camp that earnings growth won’t arrive.”
The government will probably resist launching any new reforms that could
impact the current growth momentum, said Tyagi, who manages assets equivalent to $1.9 billion.
An uptick in earnings has been the missing
piece of a rally that sent Indian stocks to multiple records before a decline that began in February and was triggered by concerns about the
In the past four years, Nifty earnings growth has increased at a measly 3 per cent compounded annual growth rate, data compiled by Bloomberg
show.
Indian lenders, the biggest group in the index, have been a drag as they struggle to resolve about $210 billion of stressed assets
New rules from the central bank that put a timeline on recasting bad loans, while scrapping previous methods, means the sector will continue
to lag.
Higher provisioning may result in a 34 per cent decline in earnings for lenders, according to Deutsche Bank
Materials, especially metals, consumer discretionary and energy should lead, according to the report.
“It looks to me that we are out of
the woods now and inching towards the 15 per cent earnings growth number,” UTI Asset Management’s Tyagi said
“The upcoming year could be the one where we see this happening.”
