Stock bulls await rally on earnings
MUMBAI: Having propelled the benchmark gauge almost 10% this week in a budget-driven rally, stock bulls in India are now counting on earnings to be the catalyst for the next leg up.
The 34 NSE Nifty 50 Index members that have declared December-quarter results have posted a 34% jump in earnings from a year earlier, according to a note from local brokerage Kotak Securities Ltd on Friday. With India’s daily new Covid-19 infections slowing and the vaccination drive gaining pace, analysts are betting on a stronger rebound in the economy and corporate profits in the months ahead.
“Everything is in place— macro, policy, global backdrop,” said Gautam Duggad, head of research at Motilal Oswal Financial Services Ltd. “The market now just needs one thing to keep rallying—earnings.”
Rising optimism over earnings comes after the government unveiled a $500 billion spending plan in its budget on February 1. That saw the benchmark Nifty 50 Index surge the most since April this week.
The Reserve Bank of India raised its forecasts for economic growth on Friday, while assuring markets of ample liquidity to manage the government’s massive borrowing.
The cyclical rebound is starting to show.
Materials have seen the biggest average earnings growth among sectors in the latest quarter, boosted by JSW Steel Ltd’s profit and sales surge, data compiled by Bloomberg show. Strong loan growth at banks such as HDFC Bank Ltd, India’s largest private lender by assets, saw most of them beat estimates, even as they continued to set aside more money for bad loans.
Forward earnings forecasts for Nifty 50 members have climbed by more than 25% from a low in July and are close to erasing their pandemic-induced slump. While the gauge is trading at its highest price-to-forward earnings ratio on record, market watchers are confident profits will catch up.
This year, “forward earnings will grow much faster than market appreciation, so the PE multiples will come off,” Neelkanth Mishra, India strategist at Credit Suisse, said in a podcast. Earnings estimates will keep getting upgraded and “cyclicals can still outperform the rest of the market,” he added.
The pro-growth budget has seen strategists from Morgan Stanley to Jefferies Financial Group Inc. adding to their bullish views on cyclicals.