Neat income has so far withstood the world storm, but can RBI rate hikes distort history?

Neat income has so far withstood the world storm, but can RBI rate hikes distort history? – Mail Bonus

NEW DELHI: In terms of revenue, Indian companies have shown their potential in the first quarter, increasing growth by 14 percent year-on-year despite the protracted war in Ukraine, rising commodity prices and global supply disruptions.

Top-line growth at the Nifty level excluding finance was 9.8 percent quarter-on-quarter and 24 percent year-on-year,

said in a recent note. The result increased by as much as 14 percent between years, the broker said.

Consistent performance in international headwinds was behind performance in metals and oil and gas due to rising commodity prices as well as strong double-digit growth in the IT and energy sectors.

Taking into account the revised profit following the fourth quarter of the last financial year, ICICI Securities said that its forward-looking plans will not change much.

“On a three-year horizon, i.e. FY21-24E Nifty revenue is growing by 20% + CAGR. When we roll our valuation over to FY24E and cut our forward PE multiple amid rising interest rates, we now value Nifty at 18,700, ie. 20x PE on FY24E.


Vinod Nair, chief analyst at ET Markets, told ET Markets that while the Bank of India’s monetary stance has led to higher interest rates and would affect highly indebted sectors, India’s strong nominal GDP growth would help maintain corporate profits. constantly.


Although India Inc. has been resilient so far, there are factors that could ensure that companies’ future revenues do not yield the same returns, market analysts said.

The key risk to corporate economic growth is a deteriorating combination of growth and inflation.

Although the second half of 2021 and the beginning of the current calendar year saw a rapid renewal of the economy, the period has also been characterized by a steady rise in inflation.

Significant price tightening – which means higher input costs – and RBI’s efforts to tame these prices could rob companies of the growth rate needed to report sustained strong economic growth.

The RBI, which has raised its repatriation rate by 90 basis points in just over a month, is expected to tighten monetary policy much further in the coming months, with analysts expecting at least 50 basis points more in the current calendar year.

“We believe that there can be a considerable downward graph in terms of profit expectations. It’s still very powerful; if you look at expectations, there is still about 17 percent growth for FY23 and about 15-16 percent for next year,

Institutional Securities Director and Chief Strategist, Dhananjay Sinha told ET Markets.

“My feeling is that we are looking at a scenario where, even if you look at the RBI’s forecast of 7.2 per cent growth which changes to 4 per cent in the fourth quarter, 4.1 per cent in the third quarter, with such growth, it It is very unlikely that we will have a 16-17 percent growth in income and say 16 percent growth next year on top of almost 40 percent growth. ”

Sinha believes that in the midst of similar actions by major international institutions such as the International Monetary Fund, the RBI may need to reduce its GDP estimates, and as such, profit projections appear to be optimistic.

The experienced politician said that the central bank’s decision to increase inflation plans while high interest rate risk is actually reflected in lower interest rates.

In a statement issued after the RBI’s monetary policy statement on Wednesday, the international company Nomura said that although it agrees with the central bank’s plans for economic growth in the current financial year, growth could be very short next year.

Growth vs inflation_ weak GDP next year (1)Agencies

The main reasons Nomura said for lower growth next year were high inflation, which weighed on the purchasing power of disposable income and corporate profits, the slow effects of austerity, the still-growing growth of private supply and the contraction in global economic growth.

“The rise in interest rates is part of that. I think what has happened is that many of these companies have benefited from stimuli and that they have gained market share from smaller companies. It was a certain value, but in the future you will a) have a margin pressure and b) slow down the demand that will happen, “said Sinha.

According to him, the one-time benefit that the companies had in parallel with the increased market share could now reach its peak.

Sinha therefore warned of risk for profit as well as multiple stocks, given the sharp rise in risk-free interest rates, represented by a tightening yield on bonds.

The higher yield on government bonds threatens to reduce the valuation of equities, as the higher the risk-free interest rate, the higher the yield based on the fair value of equities. Yields on 10-year government bonds have risen by more than 100 basis points so far in 2022.

A recent comment from Axis Securities said that the BEER ratio (Bond Equity Earnings Yield Ratio) is currently trading above its long-term average, indicating a somewhat expensive stock market at the current level vis-à-vis the bond market.

BEER RATE (1)Agencies

“I think the biggest concerns are crude oil prices, metal prices and hawkish policies, which could lower valuations rather than economic growth,” Geojit told Nair.

(Disclaimer: The opinions, recommendations, opinions and opinions of the experts are their own. This does not represent the views of the Economic Times)

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