BNP Paribas Suggests Key Themes As Earnings Forecasts Are Toned Down
Specialty pharma, hospitals and diagnostics stocks look safe from a long-term perspective, says Abhiram Eleswarapu.
Earnings growth comes from sectors with low margins where there is expectation of high operating leverage, according to Abhiram Eleswarapu, head, equity India at BNP Paribas Securities India Pvt.
Even if the margins miss estimates by a small number, earnings growth could still be significant, he said. Still, earnings growth expectation for the 2024 financial year will be toned down to 12–13% due to multiple global and domestic headwinds, he told BQ Prime's Niraj Shah in an interview.
As a result, fixed-income products are preferably the safest options in an atmosphere of rising interest rates and expectations of moderate earnings growth. Financials—strong credit growth—and real estate are two prodigies on those lines, Eleswarapu said.
Views On Different Themes
Financials, insurance and nonbank financial companies are areas where positive surprises would most likely come from. Consumer discretionary and auto are pockets where a certain amount of risk could loom, according to Eleswarapu.
Over the next three to six months, rural growth may only translate into high single-digit revenue growth, led by mid-single digit volume growth, which doesn't make consumer staples tempting at the moment, he said.
Consumer staples is probably not the most exciting space to beat the moment.Abhiram Eleswarapu
He said most of the information technology companies have had high-teens growth in the past couple of years, with some of them earning a revenue of over 20% as well. "These high numbers, however, weren't expected to last and, therefore, the guidance given by the companies at present isn't shocking."
Eleswarapu said the correction in the stock prices of IT companies is perhaps an opportunity in disguise, especially because the IT spending moves in sync with nominal growth in the gross domestic product. If inflation continues to be reasonably high, IT spending will also pick up.
He said it was possible that the guidance given by IT companies might look conservative in the future. "Once analysts begin to cut their estimates for IT, I'll be more interested in the space."
"Specialty pharma, hospitals and especially diagnostics stocks look safe from a long-term perspective," he said, when asked about constructive areas in healthcare.
