Morgan Stanley is amongst them advising a buy on banks, especially those which bore the brunt of the latest non-performing loan cycle.
After mixed set of earnings for last more than two years, financial year 2019-20 is expected to see strong growth albeit on a low base of last year, experts said.
According to them, double-digit earnings growth is likely, which could be in the range of 15-25 percent.
"We believe FY19 earnings growth is likely to be in double digits and FY20 expectations are for strong growth on that base. From a 3-5 year perspective, India will continue to be a high growth economy with healthy earnings growth, Karthikraj Lakshmanan, Senior Fund Manager, BNP Paribas Mutual Fund told Moneycontrol.
At the same time, Morgan Stanley is betting big on revival in earnings for FY20. It expects Sensex FY20 earnings growth of 24 percent YoY, which can take index to 42,000 levels.
Morgan Stanley stated that the outlook for profits is better now because - 1) the rupee is no longer overvalued, 2) it is the start of a new investment cycle, 3) risk appetite is improving, 4) return of pricing power in 2020, 5) stronger GDP growth outlook; and 6) base effect.
"India is coming out of its deepest and longest earnings recession, which has taken profit share in GDP to its all-time lows, last seen in 2002. As profits mean-revert relative to GDP and with a likely acceleration in GDP growth, we think earnings could compound around 20 percent per annum over the next four to five years."
The investment bank lists following risks to strong earnings growth - 1) fragmented verdict in general elections 2019, 2) higher real rates, 3) too much fiscal discipline, 4) adverse terms of trade; and 5) global growth
The biggest driver to earnings growth could be further recovery in banking & financials, which many experts are betting on.
"We think credit growth is likely to accelerate, large banks with deposit franchises are enjoying improved pricing power, and credit costs may have peaked," it reasoned.
The global investment firm also recommended buying domestic cyclicals (both consumer and industrials) and real estate as all these are best places to play an upcoming earnings cycle.
Morgan Stanley has listed 22 companies that are expected to show strong earnings growth over the next two years. The list includes ICICI Bank, Axis Bank, Bajaj Finance, HDFC Bank, Ashok Leyland, Dabur India, InterGlobe Aviation, M&M, L&T, Oberoi Realty and United Spirits.
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