Questions Which Are Keeping Equity Investors Awake At Night

Markets have scaled newer heights without any meaningful correction. The last 1000 points on Nifty 50 index were added in just 19 trading sessions. Both, a perceptible disconnect with the ground realities and the pace of the rise have raised many questions in the minds of investors.

- Umang Thaker

“Is the earnings cycle transforming after a decade?”

Corporate profits have fallen from 7.8% to 1.8% of GDP over the last decade led by destruction in profit pools of several businesses including Commodities, Telecom, Industrials, Corporate lenders and US Generics to name a few. Most of these profit pools are in the process of getting rehabilitated. Analysts predict that even if corporate profit to GDP reverts to long term averages, Nifty could sustain a strong earnings growth of over 20% versus the 5% average, reported for the last decade.

“Has Q1FY22 begun on a strong note?”

Q1FY22 marks the fourth quarter of robust quarter-on-quarter (QoQ) revenue growth. Corporate earnings in the first quarter of FY22 have been in line with elevated expectations, aided by the deflated base of 1QFY21 and localized, less stringent lockdowns v/s 1QFY21. Nifty companies sales have been in-line (50% YoY; est. 48%), while EBITDA/PBT/ PAT growth has come in at 41%/103%/101% YoY (est. 38%/89%/94%). Of the Nifty constituents, 42% have reported beats on PAT estimates, while 34% have missed expectations.