India Inc’s earnings growth might remain sluggish for next two years’

India Inc.’s elusive capex cycle expansion means corporate earnings growth might remain at mid-to-high single digit, according to Kenneth Andrade, precluding a tearaway market rally.

- Ram Sahgal

The recent goods and services tax (GST) rate cuts and income tax relief prior to that will add some weight to an otherwise sluggish consumer economy, going into the festive season, said Andrade, associate director at Old Bridge Asset Management. But on their own, these are not enough to move the earnings needle in away that justifies current market valuations, he said.

Andrade also finds that new issues hitting the market are richly priced.

Edited excerpts:

INTERVIEW

The benchmark Nifty 50 and Nifty Midcap 150 are around 3-4% below their life highs as of last September. Do you think income tax relief, Reserve Bank of India (RBI) rate cut and GST cut will boost demand and corporate earnings to take us to fresh highs?

On the international front, the worst seems to be already in place. Our sense is that from here on, things will limp back to normalcy. It is unlikely to go back to its earlier state, but will be much better than where the Indian export economy is currently placed.

Domestically, there has been some initiative to kick-start the economy through a consumption cycle, which will add some weight to an otherwise sluggish consumer economy, especially going into the festive season.

This, in our opinion, will help keep the trajectory of earnings growth at mid to high single digit, which has been what corporate India has witnessed over the course of the last couple of years.

What the market expects? A change in sentiment and a higher growth rate. The latter is where the challenge is and the single-digit earnings growth may not be able to propel the indices significantly higher.