Earnings and margins likely to grow due to high demand

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The falling prices of commodities, increasing demand and completion of more projects have poised to bring a revival in the earnings growth, claim analysts. The corporate earnings were weak for over four years and the profits were as low as 4.2 percent to GDP in the 2014-15 fiscal. The same was at 5.3 percent on an average in the past five years. There has been a sharp increase in the past two quarters in the analysts cutting earnings prediction on the companies. The analysts have estimated the FY16 earnings to fall 13 percent year-to-date.

The estimates on around 110 out of the 500 BSE companies have seen a drop in the last six months in comparison to the 33 upgrades. As per the ratings of analysts, 220 stocks have been downgraded on the whole in comparison to 170 upgrades. The same was over 230 upgrades and over 155 downgrades in the first half of the last year.

As per the analysts, the trend is all set to change. Mahesh Nandurkar, the India equity strategist at CLSA India stated that an initial sign of revival is quite visible in the margin improvement. The commodity cost advantage is highly being passed along to the homegrown companies that will lead to the corporate earnings growth of around 16 percent to 18 percent. This will happen in the fiscal years 2017 to 2019 and the market is expected to deliver a cumulative return of 34 percent in the two years stated the strategist.

He further stated that he expects the factors including low commodity prices to augment the margins at the companies and eventually witness higher return on the equities. This will eventually trigger the upcoming investment cycle.

The India head of research working with Barclays Capital, Bhuvesh Singh stated that he expects the growth to rebound in the latter half of this year. This will be done with the help of financials, consumer, healthcare as well as capital goods sectors.




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