Jigar Shah, CEO, Maybank Kim Eng Securities India
The earnings downgrade will continue till the end of FY16. Barring a few private banks, the entire banking sector is facing headwinds in terms of poor loan growth and asset quality, despite a cut in interest rates. Metals and mining, cement, retail, capital goods, infra and real estate are the other sectors that will pull down earnings and continue to be a source of volatility. The decline in global trade, falling exports and a failed monsoon will add to uncertainty in earnings across sectors. As a result, the benefit of low commodity prices and interest rates won’t be fully visible at the bottom-line level. This calls for a review of the optimism a year ago about GDP growth recovering to 7.5-8%. Till such a time that there’s uncertainty over a rate increase in the US and a recovery in China, the cycle of earnings downgrade is not going to stop anytime soon.
Ravi Gopalakrishnan, head, equities, Canara Robeco Asset Management
The economy has been in a bad shape for a while now and it will take some time to recover. Optically, however, the earnings will bottom out in a couple of quarters. The second half of FY15 was very poor, so we could see better figures on a year-on-year basis, indicating an upgrade. Sectors such as road construction, power transmission and commercial vehicle sales are picking up. Within the consumer discretionary segment, barring large consumers, we are negative on two-wheelers and staples — largely the fast-moving consumer goods pack — because of the poor monsoon and its rural impact. Secondly, minimum support prices are still low. Going forward, with interest rates falling and the government ready to revive the GST bill, the economy should pick up steam. So, I believe the earnings downgrade is over and growth will kick in from FY17, albeit slowly.