“The downgrade cycle is now primarily behind us,” said Ashish Gupta, the fund house’s chief investment officer overseeing about $40 billion across equity and debt.
Analysts in India have been slashing their earnings forecast over the last four quarters as economic growth slowed, and the ongoing results season has been mixed at best. Still, Gupta remains optimistic, saying there are catalysts that could revive earnings across key sectors.
Market sentiment has also improved — the NSE Nifty 50 Index has risen more than 5% in October, its best month since March — though it has yet to reclaim its September 2024 peak, despite global markets rallying on AI-fueled rally optimism.
Loan growth may pick up with the country’s central bank easing restrictions to spur lending, helping shares of banks, Gupta said. Consumption and automobiles stand to benefit from a cut in goods and services tax, he added. Together, these segments make up about half of the Nifty 50 Index.
However, the deceleration in earnings downgrades may not immediately translate into big gains. That’s because valuations are still on the higher side, and a steady stream of large initial public offerings will keep adding to the supply of shares. The Nifty 50 Index is trading at nearly 21 times its 12-month forward earnings compared to last 10-year average of about 18 times. For now, consensus estimate for this financial year’s earnings growth is about 9%-10% and that “looks easily achievable,” Gupta said. He expects the earnings growth for the following year to climb to 17% and being much more broad-based.