by winston » Wed Dec 09, 2015 1:16 pm
Why India’s Earnings Growth Could Double Next Year: CLSA
By Shuli Ren
Despite all the hefty reform talks, India’s earnings seasons make investors nervous.
During the last 6 years, actual earnings growth turned out 6-15 percentage points lower than estimates at the beginning of the year, the worst being the most recent fiscal year when Prime Minister Narenda Modi was in the office.
CLSA’s strategist Mahesh Nandurkar is not afraid of being burned again, pounding the table this morning saying that earnings will have to recover. Nandurkar expects Indian companies to report 20% earnings growth in fiscal year ending March 2017 versus 11% currently.
Earnings in the last year were bad because falling inflation caused India’s nominal GDP growth to decline from 13.5% at the beginning of 2014 to only 6% in the September quarter. “This has taken its toll on corporate revenue growth,” said the CLSA strategist. But as commodity prices stabilize, inflation will tick up again, which should help nominal GDP and corporate earnings growth.
Second, thanks to lower commodity prices, the average profit margin for Indian companies has moved up by 2 percentage points in the last year. As Indian companies sell more goods and services, operating leverage should kick up and can “further improve by 100 basis points” next year.
Third, base effect! The base case is not demanding, so comparison (since we are talking about growth rates) gets easier.
Source: Barron's Asia
It's all about "how much you made when you were right" & "how little you lost when you were wrong"