IDFC Securities Sees Strong Pick Up In Earnings From April

IDFC Securities expects a sharp pick up in corporate earnings from April onwards, despite mild downgrade risks owing to GST and bank recapitalisation led concerns.

The brokerage firm sees two themes predominantly playing out as the economy recovers:

• Asset-heavy and export-oriented industries would do well as the global economy recovers, and consequently, the valuation gap between asset-heavy and asset-light industries would narrow.
• Consumption is the strongest component of GDP and discretionary consumption especially continues to find growth impetus from retail credit, which we feel would continue in near term.

Besides, it expects the NSE's benchmark Nifty 50 earnings to register a compounded annual growth rate of 15 percent over the financial years through March 2019.

Commenting on the global scenario, IDFC said 2018 will be marked by balance sheet tapering by major central banks, which will define the capital flows to emerging markets in the near term while the weaker emerging markets bear the brunt.

The brokerage said that Indian companies will be better positioned in this scenario.

The research company is bullish on engineering and capital goods, construction, metals and mining, oil and gas, consumer goods, automobiles, media and pharmaceuticals sectors, as it believes that the recent reduction in tax rates of companies in the discretionary consumer sector would boost the overall consumption.

Besides, IDFC Securities upgraded Bajaj Auto Ltd. to ‘Underperform' in 2018. The brokerage firm earlier had a ‘Sell' call on the stock, and expects its shares to reach Rs 2,900 level in the next 12 months.