Earnings of Sensex companies to decline up to 8% this year on economic concerns; fiscal stimulus may help recovery: Analyst

At present, Indian indices are under-performing as compared to others and a package from the government can help cover the ground, he said.

Press Trust of India May 26, 2020 17:15:22 IST
Earnings of Sensex companies to decline up to 8% this year on economic concerns; fiscal stimulus may help recovery: Analyst

Mumbai: Earnings of BSE Sensex companies will contract by up to 8 per cent in 2020-21 on the broader economic worries, and hopes of gains in equities should be pinned on a decrease in infections or a fiscal stimulus, an analyst said on Tuesday.

Majority of the countries world over like Singapore and the US have given large fiscal stimulus packages which India is yet to announce, Bank of America Securities'' India equity strategist Amish Shah said.

The GDP growth in India is set to contract by up to 5 percentage points in FY2021, according to various analysts and the RBI has also acknowledged that the economy will be shrinking this year. However, experts also feel that the equity markets do not reflect the real economic challenges.

"We are expecting a 7-8 percent contraction in companies this fiscal and it will go up to 17 percent in FY22," Shah told reporters. Markets need a trigger and a growth in earnings is unlikely to be it.

They will look for how the COVID-19 infection curve goes, and if it goes down, and also a fiscal package which can generate demand, he said.

Click here to follow LIVE updates on coronavirus outbreak

In a scenario where neither of it happens, that is, the infections continue to rise or a stimulus package does not come, investors will keep betting on the defensive sectors like information technology, pharma, fast-moving consumer goods and even telecom, Shah said.

At present, Indian indices are under-performing as compared to others and a package from the government can help cover the ground, he said.

It can be noted that the government has announced a nearly Rs 21 lakh crore relief package for the country to help minimise the impact on the economy which many analysts say will not result in fiscal spend of over 2 percent of the GDP.

Shah said life will not be as normal as it used to be and there will be structural changes as a result of the pandemic from the medium to long term perspective.

The changes may include a second wave of consolidation where entrenched companies across sectors expand their market shares as it happened in the aftermath of demonetisation and GST introduction (the first wave) and also disintermediation of the supply chains where online mediums become more successful largely at the cost of the wholesalers or middlemen.

It will also lead more sovereign wealth funds investing into Indian assets because of the relatively higher yields over a longer period of times that they offer and also formalisation of jobs which can eventually lead to more targeted interventions by the government.

The government is trying to initiate reforms on the basic factors of production including land and labour, he said, crediting it for being "creative" with the former, wherein it has adopted strategies beyond repealing or replacement of the land acquisition laws to be more effective, like giving land available with state-run enterprises like BHEL.

There is also a likelihood that India will increase its "oversight" on citizens in the future which will create opportunities for private businesses engaged in the sector, he said, adding that mass deployment of controversial surveillance systems in countries such as China has helped it in dealing with COVID crisis better.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

As world waits for COVID-19 vaccine, India must use time to build robust immunisation plan, delivery system for last-mile reach
India

As world waits for COVID-19 vaccine, India must use time to build robust immunisation plan, delivery system for last-mile reach

Right from selecting the strategy for delivery of COVID-19 vaccine to recruiting a large volunteer staff, every tool must be analysed from the perspective of India’s unique public health system and its capabilities

Wimbledon to allocate $12.5 million in prize money to 620 players despite cancellation due to COVID-19
Sports

Wimbledon to allocate $12.5 million in prize money to 620 players despite cancellation due to COVID-19

Wimbledon officials said 256 players who would have competed in the main draw will each receive 25,000 pounds, while 224 players who would have competed in qualifying will each receive 12,500 pounds.

Life after coronavirus: A look at what recovery from COVID-19 may look like for many survivors
science

Life after coronavirus: A look at what recovery from COVID-19 may look like for many survivors

Hundreds of thousands of seriously ill coronavirus patients who survive and leave the hospital are facing a new and difficult challenge: Recovery