Corporate earnings season: 2024 has been a bumpy ride in terms of economic health and geopolitical outlook. Corporate earnings took a hit as demand remained subdued in urban areas despite rural uptick. Inflation continued to take the better of corporate investments. And as per many economists, RBI might not start its rate cut cycle in the upcoming MPC meet.
According to the Alpha Strategist Report by Motilal Oswal Private Wealth, earnings growth is expected to moderate to a 12-14 per cent CAGR (Compound annual growth rate) over FY24-26, with a temporary slowdown, similar to one seen during Q2FY25.
Besides domestic factors at play, the geopolitical picture has also made the future path kind of blurry. Trump's presidential win, tensions in West Asia, foreign capital outflow and rising US yields, all together are adding additional pressure to India's growth path.
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While several emerging markets are witnessing heightened pressure, India's situation is getting more complicated because of the recent corporate earnings results.
"For India, these outflows (FIIs) were exacerbated by the ongoing result season that failed to justify valuations. Correction was more pronounced in sectors that saw sharp rally in the past one year and especially in companies that failed to meet market expectations on earnings," the wealth management firm stated in a release.
However, even as the larger outlook remains dampened, Rupee has shown resilience, especially when compared to its peer currencies. Plus, robust GDP numbers and "managed twin deficits" indicate certain optimistic aspects that might push the economy.
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What about the Equity Market?
In the last 2 months, domestic markets have witnessed a sharp downfall of over 9 per cent, signalling a bearish sentiment. However, many analysts have called the correction 'healthy' as valuations were on skyrocketing levels.
Markets have witnessed similar levels of corrections in past years as well and thus it's not uncommon for benchmarks to experience such lows.
"One must be cognizant of the fact that Equity market returns are not linear. Markets have witnessed intra-year drawdowns of 10 per cent or more in 22 out of the last 25 years and investors should always be prepared for such sharp bouts of volatility," the release said.
While the period of easy returns might be over, it would be wrong to ignore the resilience India's stock market has shown.
The country's contribution to global market capitalisation has surged from 1.7 per cent in 2013 to 4.3 per cent today. Even the ranking of the nation, in terms of market cap, has soared to 5th from 17th.
Post this correction, large Caps valuations have come in the fair range almost at par with long term average, while Mid and Small caps on aggregate continue to remain relatively expensive, the wealth management firm further added.
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