Goldman sees start of upturn in corporate profits

Timothy Moe said the micro-level reforms undertaken thus far have aided ease of doing business and are also a positive for corporate earnings

Despite a rough start for the markets in this calendar year and limited progress on headline reforms, India will remain one of the strongest growth stories in the region, believes Timothy Moe, chief Asia-Pacific regional equity strategist at Goldman Sachs, the multinational investment banking entity.

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He said the micro-level reforms undertaken thus far have aided ease of doing business and are also a positive for corporate earnings.

  “The longer term positive drivers are the five-year very strong growth potential, the fact that we have got a cyclical recovery in the economy and what appears to us is the beginnings of a cyclical upturn in (corporate) profits,” he says.

The views come as the government nears completion of two years in office (next month) and the markets are keenly waiting for the next leg of reforms to propel economic growth and an uptick in corporate earnings.

“From a cyclical standpoint, we think the economy is also on the upward trajectory and that’s helped by a more accommodative central bank. Interest rates and inflation have been coming down. All this is starting to filter down to the corporate earnings cycle, which is the key thing driving markets,” he says.

And: “India has the potential of (annual) GDP (gorss domestic product) growth of between six and seven per cent or perhaps even more. Aggregate top-line GDP growth, we think is strong, and is basically driven by very favourable demographics and low per capita income that allows more rapid growth as you catch up starting from a low base.”

The impact of reforms, according to Goldman Sachs, has been thus far been a mixed bag, a case of a glass being half empty and half full.

“The half empty part is that some of the larger headline reforms, notably the goods and services tax (GST), has not yet been passed because of political hurdles. On the more constructive side – and this is somewhat beneath the radar because it doesn’t make to the frontline headlines of the newspapers – is that there have been quite a large level of micro-level reforms,” Moe said.

"There are a lot of practical reforms that have taken place that we think are broadly facilitating macro growth, and should ultimately also translate into a better corporate earnings environment," he says.

Adding: "The ease of doing business has improved dramatically. So there are a lot of practical level of reforms that have taken place that we think are broadly facilitating macro growth and should ultimately translate into better corporate earnings environment."