{"id":1892,"date":"2021-01-01T00:00:00","date_gmt":"2021-01-01T00:00:00","guid":{"rendered":""},"modified":"2025-11-07T10:45:46","modified_gmt":"2025-11-07T05:15:46","slug":"strong-earnings-rebound-foster-market-gains","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/strong-earnings-rebound-foster-market-gains\/","title":{"rendered":"Strong Earnings Rebound to Foster Market Gains"},"content":{"rendered":"
<\/div>\n

Indian Indices have been scaling steadily, since 2014, when the current regime led by PM Modi came to power. Much of these gains can be attributed to the steady PE multiple re-rating witnessed by the markets, with overall corporate earnings recovery remaining modest.<\/p>\n\n\n\n

In our opinion, the multiple re-rating has been driven on the back of several landmark reforms like the Bankruptcy & Insolvency Code, RERA, GST & the path of strict fiscal consolidation amongst others, which will have significant positive ramifications and multiplier effect going forward.<\/p>\n\n\n\n

As a testimony of faith to the country\u2019s economic policies and potential, India also saw a sovereign rating upgrade, which was hugely significant, as it came by in almost 14 years. The international rating agency Moody\u2019s, gave a thumbs-up to the reform agenda, stating that the efforts to reduce corruption, formalize economic activity and improve tax<\/a> collection and administration, including through demonetization and GST, both illustrate and should contribute to the further strengthening
of India\\’s institutions.<\/p>\n\n\n\n

This upgrade has also happened at a time when India\\’s ranking in the World Bank\u2019s \u201cEase of Doing Business Index\u201d has moved up 30 places \u2013 which again is no mean feat. Overall, both are an endorsement of institutional and structural transformations ushered in by the Government in the last few years, while maintaining fiscal prudence.<\/p>\n\n\n\n

As market participants and owning fiduciary responsibility as advisors to your capital, we continuously analyse the risk-reward framework and opportunities offered by the markets for long- term wealth creation<\/a>. So far, markets have helped us generate not only strong alpha led by superior stock selection skills; but we have also benefitted from the overall re-rating of the markets that have contributed to superior risk adjusted returns.<\/p>\n\n\n\n

\n

The question that lies in front of us is \u2013 Whether corporate earnings recovery is around the corner or still a few quarters away?<\/em><\/strong><\/p>\n<\/blockquote>\n\n\n\n

We regularly observe the earnings over 3000 listed companies and specifically the constituents that comprise the benchmark indices. As per the data available, Sensex<\/a> trades at ~24xs FY17. Assuming street estimates of 10-12% EPS<\/a> growth in FY18 and ~18-20% EPS growth in FY19, it implies \u2013 Sensex EPS of ~ Rs. 1500\/- in FY18 and ~ Rs. 1900\/- in FY19, PE of 22.5xs FY18 and 17.7xs FY19. It is estimated that top 5 stocks would contribute ~70% of earnings growth in FY18 and ~55% of earnings growth in FY19.<\/p>\n\n\n\n

Our in-depth understanding across sectors, supported by our extensive interaction with – corporates, economists, bureaucrats, industry associations, trade & channel indicates that on-ground recovery has been far stronger post the transition from demonetisation & GST than that reflected in the Oct- 2017 IIP growth of 2.2% YoY. In our opinion, the manufacturing growth should be strong driven by exports and auto sales, along with a recovery in mining output, which collectively will propel IIP growth going forward<\/strong><\/em>. Retail inflation<\/a> at 4.88% for Nov-2017 vs. 3.5% in Oct-2017 was driven by higher food and fuel prices. Amidst the backdrop of rising crude, we reckon this to remain a tad sticky near ~5% in the months to come.<\/p>\n\n\n\n

As we enter FY19, with the Gujarat poll verdict behind, we believe that the Union Budget<\/a> 2018-19 would be extremely significant \u2013 being the last full Budget<\/a> of the BJP-led NDA government before the 2019 General Elections.<\/p>\n\n\n\n

We would attribute a high probability to the following events panning out in the upcoming Union Budget 2018:<\/strong>\n

 <\/p>\n