India recorded the second-highest earnings growth in the past five years at 13 per cent, according to the latest report by DSP Mutual Fund. In terms of 5-year average return on equity (ROE), India was at the fourth rank with 14, behind Brazil, US and South Africa.
In its latest report, ‘Netra May 2024’, DSP said the Indian economy has remained a steady ship in choppy waters. The economic growth has been consistently strong with corporate topline (income) and profit growing steadily.
India’s 5-year compound annual growth rate (CAGR) of earnings growth stood at 13 per cent, the second highest only after Brazil.
“India stands out for its impressive earnings growth, albeit accompanied by premium valuations. Consequently, Indian equities no longer represent a bargain opportunity. Indian equities lack margin of safety,” DSP said.
In terms of 5-year ROE and earnings growth, Brazil was at the No. 1 position with 16 and 17 per cent, respectively, in May 2024, and India was at the second rank with 14 and 13 per cent. These countries were followed by France (10, 10 per cent), Erozone (10, 10 per cent), Vietnam (14 and 8 per cent), US (16 and 8 per cent), and Canada (10 and 8 per cent).
On China, the DSP report said China is facing some economic struggles, which have led to market declines. “Even though earnings have been downgraded, the stocks are now available at good valuations. One of the lucrative sections of EM, by size.”
On the global situation, it said the global market is currently experiencing a phase of remarkable optimism, buoyed by robust corporate performance and substantial earnings growth. Notably, amidst this landscape, Brazil has emerged as a standout case. It not only exhibits significant earnings growth, but this growth is accompanied by an equally impressive valuation trend.
On gold, it said gold futures have shown rising confidence in gold’s new bull market.
On the Indian economy, it said that while the global economic landscape has been a bit wobbly, India has remained a steady ship in choppy waters. The economic growth has been consistently strong with corporate top line and profit growing steadily.
“Over the past 12 months, most economies have seen a slowdown in their manufacturing sector or services, or both. India, over the past year, has seen a consistent growth in economic output and business sentiment,” it said.
Its divergent economic trends have long been an outcome ‘in-waiting’, though never realised. But over the past year, India has shown a consistency which is probably the first evidence suggesting that India’s economic and businesses cycle can withstand global turbulence of manageable magnitude, DSP said in the report.
It also said most emerging market currencies are struggling with negative carry against the US Dollar. This has forced the central banks of these countries to be cautious in FX policy and setting their interest rates.
Recently, Indonesia has raised rates to 6.25 per cent to support its currency as US Dollar strengthens. For India, a mix of strong current account, strong FPI inflows, especially in debt markets, and RBI’s wait and watch approach has helped the currency, said.
“Strong services flows and remittances have been a big pillar of support which has kept India’s macroeconomic outlook stable,” it said.
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