The ongoing financial year will be good for Indian equity markets, driven by positive earnings outlook, according to Morgan Stanley India Co.'s Ridham Desai.
Both the third quarter and upcoming two quarters' earnings outlook looks positive, Desai, managing director at the financial services firm, told Niraj Shah in BQ Prime's Diwali special Saal Mubarak show.
The recent earnings cycle began during Covid-19, and it was triggered by a shift in the government policy changes, which favour corporate profit, he said. "We have seen a lot of reforms including GST, Real Estate Regulation Act, the cut in corporate tax rates, reduction in incentives, which are all pointing towards better corporate profits."
Due to a shift in policy environment, corporate profit's contribution to the GDP can increase past its previous highs, and may rise to 8% in next three to four years of the total GDP, Desai said.
"Now, for GDP that's posting at least 10% nominal growth. Now, that means corporate profits in India could be compounding at 20%," the MD said. Earnings compounding at 20% is likely to make India look lucrative globally, despite buying shares 20 times earnings is "really not rich".
Positive growth outlook of India is also likely to project the country as a better destination in the world, to invest money at a time when uncertainty about global growth is looming, according to him.
As base case scenario, if the world struggles, India does well in "relative count". In case the world does well, growth starts stabling, India can make upside, Desai said.
Global Outlook
In terms of global growth, the focus is on the U.S., now that China has shown some signs of recovery. If the world's largest economy manages a soft landing, defying high interest rates, the global backdrop will bear well for India, he said.
As far as the ongoing geopolitical conflicts in the West Asia and Eastern Europe are concerned, until they trigger a rally in crude oil prices, it will not impact India's growth story, according to Desai.
View On Indian Markets
Domestic events are going to be main driving factor for Indian markets' performance. Of the domestic events, general election outcome will be important factor for the market in the second half of fiscal 2024, he said.
There is an assumption people will vote in a majority government. If the outcome of the general election turns out to be in contrast to market's expectation, then significant downturn can happen, Desai said.
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