In­dia Inc profit growth could see fur­ther cuts

Financial Chronicle - - MONEY & MARKETS - NUPUR ACHARYA

For In­dian eq­uity in­vestors look­ing for earn­ings growth to catch up with pricey valu­a­tions, the wait is get­ting longer.

Profit ex­pec­ta­tions for com­pa­nies in Asia’s sec­ond-best per­form­ing stock mar­ket this year may see fur­ther cuts as a likely slow­down in gov­ern­ment spend­ing, fall­ing farm in­comes and a new tax raise near-term un­cer­tainty, ac­cord­ing to Credit Suisse Se­cu­ri­ties In­dia Ltd.

Earn­ings per share growth at NSE Nifty 50 Index mem­bers will set­tle at “mid-sin­gle dig­its” in the year to March, ver­sus con­sen­sus ex­pec­ta­tions of 11 per cent, In­dia eq­uity strate­gist Neelka­nth Mishra said in Mum­bai. Pro­jec­tions of a 23 per cent rise for the next fis­cal year may see “harsher cuts,” he said.

In­dian equities are trad­ing near record lev­els, bol­stered by a global rally and a gush of lo­cal liq­uid­ity amid fall­ing re­turns from prop­erty and gold. While bulls ar­gue the slow­down in eco­nomic ex­pan­sion in the June quar­ter was trig­gered by one-time events like Novem­ber’s cash ban and the dis­rup­tion caused by the goods and ser­vices tax, the bears say the de­te­ri­o­rat­ing out­look for com­pany prof­its doesn’t jus­tify the run up in valu­a­tions to the high­est since 2008.

“We’re go­ing through a pe­riod of dense fog, and I have of­ten used the phrase that we are a house un­der ren­o­va­tion,” Mishra said.

Growth in gov­ern­ment spend­ing, which as a per­cent­age of the bud­geted tar­get reached a record in the April-June pe­riod, is set to slow, Mishra said. Ru­ral de­mand is likely to re­main tepid as lower food prices have curbed farm in­comes, while busi­nesses are grap­pling with fre­quent tweaks to the GST regime in­tro­duced on July 1, he said.

Cit­i­group Inc. and UBS Group AG are among global banks that have low­ered their es­ti­mates for In­dia’s growth af­ter the lat­est data showed gross do­mes­tic prod­uct rose at the slow­est pace since 2014. For Credit Suisse, the read­ing has in­creased the down­side risk to its fis­cal 2018 fore­cast of 7.4 per cent.

“We are in a pe­riod of un­cer­tainty and maybe for the next three-four months, I don’t think we will get clar­ity,” Mishra said, adding the cen­tral bank may ease pol­icy to sup­port growth. “What the mon­e­tary pol­icy com­mit­tee chooses to do is their de­ci­sion but given the way data points will play out, in my view, we will see mean­ing­fully lower rates.”

That said, Credit Suisse is bullish on dis­cre­tionary con­sumer and fi­nan­cial-ser­vices com­pa­nies, and on global growth prox­ies like met­als and en­ergy.

“The mar­kets and the econ­omy are weakly linked, and there are pock­ets of growth even in this oth­er­wise weak econ­omy,” he said.

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