India’s corporate earnings growth indicate a slowdown in expansion

New Delhi, April 11 (IANS) Indian markets may be in for a phase of earnings contraction coupled with above-average valuations, according to analysts. Earnings growth in India is expected to moderate to 5-10 per cent in Q4, down from 25 per cent between April and December 2023, says Vinod Nair, Head of Research, Geojit Financial Services.

Nair emphasized the importance of adopting a targeted approach focusing on individual stocks and industries during this period of above-average valuation and economic slowdown. Domestically driven sectors like FMCG, Infrastructure, Cement, and Telecom are favored for their stable demand outlook in FY25 and potential for reduced operational costs.

Furthermore, defensive sectors such as IT and Pharma offer resilience over the medium to long term due to stable margin projections, lower input costs, and potential gains from a stronger dollar. Nair also highlighted that India’s valuations have contracted year-to-date but the timing and extent of future interest rate cuts will be crucial in shaping stock momentum for the rest of the year.

Chief Investment Strategist V. K. Vijayakumar noted that the March inflation print at 3.5 per cent on an annual basis may constrain the ability of the Fed to cut rates. The acceleration in price rise has dampened hopes of a rate cut in June, with market expectations now reduced to a maximum of three, possibly two, rate cuts this year totaling 50 basis points and likely to be backloaded.

Overall, the state of Indian markets reflects a cautious outlook amidst earnings contraction and above-average valuations, with a keen eye needed on potential delays in rate cuts and any deceleration in earnings growth. Specific sectors like domestically driven industries and defensive sectors are being closely monitored for their resilience and growth potential in the current economic landscape.