Moneycontrol
Jul 25, 2017 05:07 PM IST | Source: CNBC-TV18

Nifty@10K: Corporate earnings growth needed to support higher levels, say experts

Liquidity can take the market to higher levels but it needs the support of earnings to sustain at those elevated levels, said Raamdeo Agrawal, Co-Founder & Joint MD, Motilal Oswal Financial Services.


With the Nifty today soaring to record high above 10,000 mark in the early trade, the question is what next for the market. Will the market top out?

To discuss the market trends, CNBC-TV18 spoke to Rahul Singh, Managing Partner, Ampersand Capital Investment Advisors and Raamdeo Agrawal, Co-Founder & Joint MD, Motilal Oswal Financial Services.

Agrawal is of the view that that economy is still to pick up in terms of corporate earnings and Nifty earnings is still at about Rs 400 (EPS), while the index is at about 22-24 times at 10000.

So from current levels of PE multiples how does the market EPS go from Rs 400 to Rs 600 or to say Rs 800 in next 3-5 years is the big question. Therefore, unless earnings growth comes, higher levels on the market are unlikely to sustain because liquidity can take market to higher levels but the market needs the support of earnings to sustain at those elevated levels, he says.

Once GST settles down in about six months' time one may see a new phase of corporate growth. So, returns could be a bit constrained for around a year but in 3-5 years the returns would be decent, says Agrawal.

Meanwhile, Singh is of the view that all eyes are on the economic recovery that is expected to come in the second half and so the market would start building in recovery in the next quarter and market could move sideways, 5 percent up and down from here.

So one expect to close the current fiscal with a positive return, said Singh.

While for some sectors the valuations are very high, there are others that have not participated in this rally, says Singh, sectors like the capital good and construction space, so there is some way to go. Within financials space the corporate banks haven’t recovered ground as the NBFCs or retail banks have. So the house is focused on these two sector and next year could.

The next year could belong to corporate lenders and also to E&C space and the food chain behind E&C and public capex, which could include capital goods equipment providers etc.

Agrawal says there has not been any change in major market trends over the last 2-3 years, except the fact that there has been change in way financial savings have moved - flows into equities has been very strong but what this will lead to and where it will go only time will tell. So, this could be the new industry of asset management companies and with large AMCs going public it could be a new opportunity of investing. But fortunes of other industries are not changing – whatever was doing well is doing well and this kind of trend will continue.

Agrawal believes GST will enable further growth for strong corporate institutions but the whole implementation could take some more time.

He thinks the NBFC sector can still achieve 7-8 percent from current levels.

CNBC-TV18's regular market experts SP Tulsian of sptulsian.com, Ashwani Gujral of ashwanigujral.com,Mitessh Thakkar of mitesshthakkar,com and Ambareesh Baliga spoke on the outlook for the market and their stock specific views.

For the entire discussion, watch video

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