Indian economy in period of dense fog: Credit Suisse

FY19 to see harsher earnings cut; remain positive on markets

Describing Indian economy to be in a period of “dense fog”, Credit Suisse on Wednesday said structural reforms, including the goods and services tax (GST), has introduced significant uncertainties related to growth, fiscal health, inflation, currency and the banking system in the country, for the near term. Credit Suisse' India Equity Strategist Neelkanth Mishra told reporters here the "Indian economy is going through a period of dense fog", with uncertainty of macro-economic variables by itself likely to impede investment intentions and act as a drag on growth, causing downgrades to GDP as well as earnings estimates for the next financial year".

Credit Suisse, however, is upbeat on the Indian markets and sees no major downside, despite a near 20 per cent rise in calendar year 2017, unless global cues disappoint. However, Mishra cautioned against more corporate earnings downgrades. “FY18 consensus EPS growth of 11 per cent is likely to settle in mid-single digits. FY19 EPS growth is currently building in a sharp rebound. The cuts are likely to be harsher for banks, discretionary, pharma and consumer staples sectors as the overall growth remains benign. Private sector banks, however, remain an overweight in our portfolio.” Credit Suisse believes the relationship between the economy and markets is tenuous at best.

“Not only are market returns more price-to-earnings (PE) driven, markets and economy also have different structures. Large informal economy, large parts of formal economy are not listed, a large part of market is driven by global factors or is growing penetration and share,” Mishra says.