Earnings and quality balance sheets will become increasingly key factors for Indian stock markets, Deutsche Bank says in a report titled “Show me the earnings.”
“We expect companies and sectors, particularly with a shrinking investible universe, seen displaying sustainable earnings momentum will see valuations continue to expand, in many cases, beyond recent historical highs,” Deutsche writes in the note dated on Friday.
Deutsche argues India has seen the ‘shallowest’ downward revision to consensus earnings among BRIC (Brazil, Russia, India and China) countries.
Within individual sectors, private banks and consumer goods have seen consistently positive earnings revisions, while public sector banks, telecoms, metals and oil and gas have seen downward revisions. Deutsche recommends investors to stay "overweight" in private sector banks and non-banking financial companies, and select consumer discretionary and staple stocks, as well as select information technology stocks. Its top picks are Axis Bank, Tata Consultancy Services, Larsen and Toubro, Cummins, Mahindra and Mahindra, Bajaj Auto, and ITC.
Separately, Morgan Stanley's India strategists are of the view that macro indicators are pointing to improvement in broad market earnings.
"M1 growth has seemingly put a firm bottom in place in November 2011 and accordingly, broad market revenue growth may have found a floor in the quarter ended June 2012," Morgan Stanley strategists said in the report. "In a couple of months, revenue growth should start to look up or at least stop decelerating. There is still a stiff base effect-revenue growth was 24 per cent in the September and December quarters of FY12, but a quarter-over-quarter improvement is in order based on the direction of M1 growth."
M1 indicates the amount of money in circulation.
