For corporate earnings, risks lurk everywhere
Motilal Oswal Financial Services showed that Nifty 500 companies reported earnings growth of 25% year-on-year in Q3FY24, but this growth was largely fuelled by the banking, financial services and insurance (BFSI) and automobile sectors. Meanwhile, it is widely expected that the outcome of 2024 general elections in May will be favourable for the market.
For now, there seems to be a low probability of political discontinuity. But once the model code of conduct is implemented, jitters in the form of lower order inflows and subdued volume offtake could be felt at companies in the infrastructure sector, weighing on Q4FY24 and Q1FY25 earnings.
Apart from this, a pronounced slowdown in the US could prevent a revenue revival at Indian IT companies. Any further escalation in tensions in the Red Sea region and resulting disruptions in supply chains could stall earnings growth momentum as operating costs take a hit.
Meanwhile, the MSCI India index is trading at a one-year forward price-to-earnings multiple of over 20 times, according to Bloomberg data, a steep premium to those of its Asian peers. Companies will have to deliver earnings growth to justify this expensive valuation.
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