Feb 16, 2017 04:15 PM IST | Source: PTI

'Strong earnings growth likely on rebound in certain sectors'

According to a report by Kotak Institutional Equities, the projected earnings recovery is largely due to sector- specific factors and is not based on fantastic hopes of a domestic economic recovery.

'Strong earnings growth likely on rebound in certain sectors'

Indian companies are expected to post strong earnings growth over the next few years, driven by improved fundamentals of banks and higher global commodity prices for metal and oil and gas companies, says a report.

According to a report by Kotak Institutional Equities, the projected earnings recovery is largely due to sector- specific factors and is not based on fantastic hopes of a domestic economic recovery.

"We model FY2018 and FY2019 net profits of the Nifty-50 Index to grow 20 per cent and 16 per cent, driven by improved fundamentals for banks (lower loan-loss provisions) and higher global commodity prices for metal and oil and gas companies," said the report.

It, however, added "in fact, we see downside risks to earnings in cement, consumer discretionary and industrials if domestic demand conditions were to stay subdued".

The third quarter of this financial year saw a strong recovery in earnings from a very low base in several sectors but underlying trends continue to be subdued with demonetisation adding to the woes.

"The recent run-up in the Indian market may not sustain without better support from earnings and fundamentals," the report said adding global and domestic macro factors are generally less supportive and domestic demand conditions weak.

Regarding the Reserve Bank's policy stance, it said the Central Bank may have scope to cut policy rates by 25-50 bps over the next 12 months but the bulk of the decline in interest rates in the current economic cycle may be largely over.

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