India’s Earnings-to-GDP Ratio Rebounds Since FY20

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On aggregate, net earnings were 4 per cent higher than street expectations…reports Asian Lite News

The corporate earnings momentum has improved significantly since FY20.

Earnings have surprised on the upside in the recent past, driven by an improvement in margins, foreign brokerage Nomura said in a research report.

“We think, from hereon, margin levers are limited and growth will be largely dependent on volume growth,” it said.

“We are constructive on earnings growth in the medium term supported by government policies and its impact on macro factors. The earnings-to-GDP ratio can continue to improve,” it added.

The corporate earnings-to-GDP ratio, which has recorded a consistent decline since the Global Financial Crisis (GFC), has rebounded since FY20. Most segments, particularly the commodity-consuming manufacturing sector, have recorded strong growth since FY20, Nomura said.

In an analysis of a set of 232 companies (referred as BSE 200+), which are part of the BSE 200 index and coverage universe, net earnings recorded 30 per cent y-o-y earnings growth.

Excluding financials, commodities and telecom, where earnings tend to be volatile, the aggregate earnings growth was strong at 22 per cent y-o-y. The earnings momentum has improved in the recent past as the four-year CAGR between 3QFY20-24 is at 32.3 per cent, vs 2.9 per cent between 3QFY16-20.

On aggregate, net earnings were 4 per cent higher than street expectations, the research said.

The year-on-year growth was particularly strong in cement, autos, and infrastructure/transport/logistics (including airline). The growth was muted in IT services and consumer staples, but on aggregate the earnings were ahead of consensus estimates.

The market expects the Nifty 100 index to record 28.4 per cent earnings growth in FY24E aided by strong profits in the oil and gas sector and financials.

For FY25E and FY26E, earnings growth expectations are modest at 12.1 per cent and 13.3 per cent y-o-y, respectively.

Financials will contribute 38 per cent to the incremental earnings of the Nifty 100 over FY24-26E, as per consensus estimates. Earnings growth is expected to moderate across most sectors over the next two years vs FY24 owing to a high base, the research said.

The growth will be driven by increase in volumes as margin levers have already played out. Slowdown in economic growth and higher commodity prices are the key risks to the market’s current earnings estimates.

“We think capex, along with domestic manufacturing, will lay the foundation for earnings growth in the medium term,” the report said.

India Dedicated Funds Continue 49-Week Inflow Streak


India dedicated funds have now seen the 49th straight week of inflows, Elara Securities said in a report.

The inflows include $712 million this week after $766 million in the previous week. Largecap funds continued to see the biggest portion of this flows ($631 million).

Some revival is also seen in smallcap funds where a total $280 million has come in the past nine months. India flows continue to be strongest from US investors ($215 million), followed by Ireland ($177 million) and Japan ($124 million) investors, the report said.

Countries where both domestic and foreign inflows are strong include the US, Japan and India, the tracker said.

On the other hand, China is witnessing strong domestic inflows, but foreign flows are still weak. Over the past month, the pace of inflows by domestic investors into Chinese equity was strongest since 2015.

Overall, the global liquidity situation continues to remain benign with most markets witnessing strong domestic flows, it added.

“China funds have started showing strong outperformance over India funds, finally. Similar outperformance was seen in May 2022 after which we saw a round chasing into this trade. Likewise, the second big leg was from November 2022 to February 2023 with an outperformance of 40 per cent,” the report said.

With the strong domestic flows and beginning of outperformance, it will be key to see if foreign flows start shifting there, though there is no signs of this trade as of now, the report said.

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