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topline growth nifty The level excluding financials was 9.8 percent quarter-on-quarter and 24 percent on an annualized basis,
Said in a recent note. The brokerage said the bottom line grew at a decent rate of 14 per cent year-on-year.
The strong performance amid global adverse conditions came on the back of strong double-digit growth in IT and power sectors along with a rise in commodity prices on the back of better performance in metals and oil and gas.
Taking into account the revised earnings after the fourth quarter of the previous financial year, ICICI Securities said that there are no major changes in its forward estimates.
“Nifty earnings are growing at 20%+ CAGR over the three year horizon i.e. FY21-24E. Rolling our valuation to FY24E and trimming our forward PE multiples amid rising rate hike scenario We now hold Nifty at 18,700 i.e. 20x PE on FY24E. ,
agenciesVinod Nair, Research Head, Services told ET Markets that in times of monetary crunch reserve Bank of India This means interest costs have increased and will impact highly leveraged sectors, with strong nominal GDP growth in India helping to stabilize corporate earnings.
opposite view
Market watchers say that while India Inc has shown resilience so far, there are a few factors that can ensure that future corporate earnings may not deliver the same level of returns.
Chief among the risks to corporate earnings growth is the deteriorating growth-inflation mix.
While there was a rapid renewal of economic activity in late 2021 and the beginning of the current calendar year, the period has also been marked by a steady rise in inflation.
significant hardening of prices – which represents higher input costs – and reserve Bank of IndiaEfforts to contain those prices can rob companies of the growth momentum they need to report continued strong earnings growth.
RBI, which has hiked the repo rate by 90 basis points in a span of almost a month, expects further tightening of monetary policy in the coming months, with analysts expecting at least 50 bps more in the current calendar year .
“We feel there could be a very down graph as far as earnings expectations are concerned. It’s still pretty strong; If you look at the expectation, it is still around 17 per cent for FY23 and around 15-16 per cent for the next year,
Dhananjay Sinha, MD and Chief Strategist, Institutional Securities told ET Markets.
“My understanding is that we are looking at a scenario where you look at the RBI’s 7.2 per cent GDP growth forecast, which translates to 4 per cent in the fourth quarter, 4.1 per cent in the third quarter. This is very low. Chances are our income will increase by 16-17 per cent and increase by 16 per cent in the next year on top of about 40 per cent growth.
Sinha believes that amid similar actions by leading global institutions such as International Monetary FundRBI may need to reduce GDP estimates and as such, earnings estimates appear optimistic.
The veteran strategist said the central bank’s decision to raise inflation projections while the growth risk is high, actually translates into low growth.
In a note issued after the RBI’s monetary policy statement on Wednesday, global firms nomura While it agrees with the central bank’s GDP growth projections for the current fiscal, the U.S. said that the growth rate for the next year could be significantly lower.
agenciesThe key reasons Nomura attributed for the weak growth in the coming year were higher inflation on real disposable income and corporate profits, the effects of policy tightening, still dormant private capex growth and a global growth slowdown.
“The rate hike is a part of it. I think what has happened is that a lot of these companies benefited from the incentives and the fact that they gained market share from smaller companies. There was a certain pricing power, but going forward you will have a) margin pressure and b) demand slump,” Sinha said.
According to him, the one-time gains that the companies had while increasing the market share may now peak.
Sinha therefore cautioned against risks to equity multiples along with earnings, given the sharp rise in risk-free rates, representing a hardening of bond yields.
Higher government bond yields threaten to lower equity valuations because the higher the risk-free rate climbs, the higher is the discount rate based on which the stock’s fair value is arrived at. Yields on 10-year government bonds have climbed over 100 bps so far in 2022.
In a recent note, Axis Securities said that the BEER ratio (Bond Equity Earnings Yield Ratio) is now trading above its long-term average, indicating a slightly costlier equity market at current levels than the bond market.
agenciesGeojit’s Nair said, “I think the biggest concern is about crude oil prices, metal prices and bullish policies, which may reduce valuations instead of earnings growth.”
(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)
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