Double-digit profit growth seen for India equities

Mumbai • At a time when emerging markets have been roughed up by trade tensions between the world’s biggest economies, the earnings picture in India is improving.

That’s the message from Morgan Stanley as it expects companies in the S&P BSE Sensex to report a 23% increase in net income in the June quarter from a year earlier, with more than three quarters of the 30 members likely to contribute positively to aggregate profits. That would mark a third straight quarter of double-digit growth, according to data compiled by Bloomberg.

“Results should show some recovery and broadening of earnings growth,” Morgan Stanley analysts Sheela Rathi and Ridham Desai said in a July 5 report.

Research firms from Deutsche Bank AG to Crisil Ltd are also bullish. “Besides the supportive base-effect, there is also a strong revenue boost owing to higher global commodity prices,” Bijay Kumar, an analyst at Deutsche Bank AG wrote. He expects earnings for stocks on the Nifty 50 Index to rise by 20%.

Thanks to a robust recovery from the national sales tax introduced last July and higher metal prices, revenue growth in the period may reach a three-year high of 13%, according to Crisil. Actual earnings that reinforce analysts’ forecasts will help justify optimism among analysts about the US$2.1 trillion (RM8.44 trillion) market’s prospects despite headwinds caused by high oil prices, a weak rupee and hardening interest rates.

India’s economic growth has picked up in recent months, prompting the central bank to raise its out- look for gross domestic product growth to 7.4% in the year that started April 1 from 6.6% in the previous year. The world’s fastest-growing big economy is relatively shielded from trade risks due to its large domestic market, which has added to the allure of its stocks.

The Sensex jumped 7.5% in the June quarter in local-currency terms, the top performer among developing nations. That’s as the MSCI Emerging Markets Index slid almost 9%, data compiled by Bloomberg show. The Sensex rose 0.7% to a five-month high at 1:58pm in Mumbai yesterday.

Commodity-linked sectors, such as steel products and petrochemicals, are expected to continue growing as prices surge. Cement will continue to witness high volume-driven growth, led by demand from the affordable homes, according to Crisil.

Sanctum Wealth Management Pte Ltd said it expects consumer and private-sector financial companies to maintain leadership, technology companies will demonstrate positive momentum, according to CIO Sunil Sharma. “There are signs of bottoming out in healthcare but one needs to closely watch the numbers. Metals and power sector are likely to disappoint, while automakers should show strong numbers on pass- through of prices to customers,” he said. — Bloomberg