A slowdown in Nifty's earnings growth could affect inflows from foreign institutional investors, Chakri Lokapriya, managing director at TCG Asset Management, said.
“From an FII perspective, growth is very important because currencies of emerging countries including India depreciate over time,” Lokapriya told BloombergQuint in an interview. “So if we assume a 3-5 percent depreciation per year, the returns have to justify this depreciation. These returns come only with growth, which is now being cut.”
After a weak first quarter, investors were hoping for green shoots of earnings growth in the second half of financial year 2019-20. But business sentiment in India took a hit after oil prices shot up globally in the last two days on account of shock disruptions in Saudi Arabia. For a net importer like India, such a disruption comes at a time when a weakening rupee is also delaying chances of an earnings recovery.
“FY20-21, Nifty earnings growth is likely to be cut again. In FY20, it'll be 10-12 percent, and in FY 21, the growth will likely come down from 20 to about 15 percent,” he said.
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