Most analysts are expecting earnings of corporate India to revive. A Business Standard report points out that March 2016 quarter numbers will be the best in the past seven quarters. A major part for the rebound is the low base effect, incremental rise in commodity prices and currency depreciation.
The reasoning cited by analysts points to a technical or a mathematical growth for corporate India. No one seems to be expecting a qualitative growth or a volume-led growth. If this is the case, then the recovery in the markets will be short-lived.
So, does this mean that Indian economy is still not out of the woods? Comments from some experts suggest that analysts might be in for a pleasant surprise.
In a recent event organised by Singapore Symposium 2016, Reserve Bank of India governor Raghuram Rajan said India is poised for a ‘leap in production’ and the government’s emphasis on infrastructure creation is bearing results. Rajan pointed out that for the first time in India’s history the country is close to power sufficiency.
A similar view is also reflected in an article in Business Standard written by Akash Prakash of Amansa Capital. Justifying it with data, he pointed out how various segments of the industry are witnessing strong growth. Electricity generation, cement production, port volumes, two-wheeler sales and the Naukri job index all pointed towards a strong recovery in February 2016 as compared to November 2015.
Prakash also pointed at an activity index maintained by Jefferies, the broking house, which takes into account various data prints from the economy. The three-month moving average of this index has seen growth rising to 4.7%, a 12-month high.
So, why is there a disconnect between the bullishness of experts that is not reflected in the performance estimates of analysts?
Firstly, growth is still at a nascent stage and not too widespread. Secondly, corporate India is still jittery which is visible from their hesitation in committing capital for growth. This anxiety also gets reflected in their interaction with analysts that ultimately gets reflected in their projections. The industry has gone through such a bad phase over the last 5-7 years that small growth numbers are not enough to build their confidence.
Firstly, growth is still at a nascent stage and not too widespread. Secondly, corporate India is still jittery which is visible from their hesitation in committing capital for growth. This anxiety also gets reflected in their interaction with analysts that ultimately gets reflected in their projections. The industry has gone through such a bad phase over the last 5-7 years that small growth numbers are not enough to build their confidence.
Poor export is also one of the reasons for poor numbers. The growth in domestic sales is eaten away by poor export growth. Nearly 18 of the 50 companies in the Nifty derive more than 30 per cent of their revenue from global markets. These companies according to a report account for slightly less than half of the Nifty companies total market capitalisation. Indian exports are already down for the past consecutive 15 months.
However, those companies who have a largely domestic presence might gain from the impending growth in Indian economy. Broking firm Religare expects Index of Industrial Production (IIP) to turn positive in February 2016 after declining in each of the last three months.
Key for sustainable future growth however, depends a lot on monsoon. Though the benefit of seventh pay commission and one rank one pension (OROP) will have a positive effect on the economy, renewed, steady and widespread growth will need a good monsoon.
By the time the quarterly results start coming in force, monsoon estimates from various agencies will be known. It is thus the guidance and revision of analyst estimates that will drive the market in immediate future.
