Mumbai: Stating that India is still among the best in Asia, the French multinational bank and financial services company BNP Paribas said that the corporate earnings growth, which has been a bane of Indian equities for the last few years, is expected to improve from second half of FY17 amidst a gradual recovery in investment and consumption.
According to BNP Paribas, the stabilisation of commodity prices might lead to a sudden jump in commodity linked sectors earnings, while the implementation of seventh pay panel recommendation could lead to demand-driven topline recovery, especially in the consumer sector.
“We have been overweight on India since the May 2014 elections. This largely worked, though not in the past three months. There were several reasons for the recent underperformance. Earnings, for one, are still not picking up due to weak demand in industrial and rural sectors,” said Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas.
For the past four years, average earnings growth of corporates in the frontline equity indices like the Sensex or MSCI India has ranged between 4-7 per cent, despite 10-12 per cent nominal GDP growth. “Indian corporates’ topline decline in the past couple of quarters was similar to that during the global financial crisis, the worst in the past 10 years. Earnings seem to be reviving slightly, which we assume is driven by margin expansion after the commodity price collapse,” he pointed out.
The egregious valuation premium to Asian and emerging marketpeers has been a traditional problem of Indian equities.
