4 days ago
Result season was better than expected; BFSI beneficiary on multiple fronts: Krishna Sanghavi
Krishna Sanghavi
, Chief Investment Officer – Equity,
Mahindra Manulife MF
, says Indian companies reported better-than-expected earnings. Growth is spread across various sectors. Energy companies saw a combined earnings growth of 7-8%. BFSI and commodity sectors performed well. Divergence exists within sectors, with some companies growing rapidly. BFSI benefits from double-digit
nominal GDP growth
and strong credit demand. Increased domestic savings are boosting capital markets and related businesses in India.
Internal indicators like high frequency data are supporting the India equity market right now. Where is the next big push going to come in from and is it going to be only led by some clarity on tariffs?
Krishna Sanghavi:
Tariff clarity is something not only India but a lot of global economies and market participants are awaiting. That will clearly help. Maybe it lays down a nice road map for India to further increase its manufacturing capabilities in terms of ability to supply from here to global markets, mainly the US. Let us not forget the US is the largest consumer in the world, and to an extent, any comfort, any small window opening up for Indian players to offer their products to US customers can clearly help.
Yes, there might be some challenges on the tariff front. On the reverse side, some Indian industries might have some incremental competition coming up from reduced tariffs, if at all. So tariff is clearly one part and the other part remains how global capital market flows play out especially with FPIs moving money across markets, whether you call it developed markets or emerging markets on one front and within those DMs or EMs, how each country shapes up on valuation/incremental growth curve.
So, on the growth part, yes, India is placed nicely with 6.5% GDP growth rate for FY25. It is more likely to be in a similar range for FY26 based on current estimates. A nice double digit nominal growth rate on the back of real GDP shows the economy is broadly intact and all we need is some sort of clarity, maybe a little bit more global.
The earning season has just concluded and this time, expectations were quite muted. But we have to understand that the companies have performed a little better versus the muted Street expectations and banking is one of the consensus buys coming in on the Street. Help us with your sectoral calls at this point in time, anything that stood out for you with respect to the earning season as well.
Krishna Sanghavi:
You are right, the result season was better than expected and the muted expectations clearly help in judging the output as better or maybe worse. For a change, we are having a better results season and the nice part is really well spread across. In fact, if you look at Energy index, there is 7-8% earning growth as a combined basket and profits is broadly spread across BFSI as well as commodity aggregate basket of oil and gas, metal, cement on one side or the resource consumers which is the entire non-BFSI, non-commodity piece, on the other.
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One interesting observation from the sectoral mix is that it is quite divergent. Within the same sector, some companies are growing at 15-20% and some are really lagging. So, that is a company or a stock specific earning trajectory always remains relevant in Indian markets because there are a large number of companies to evaluate and the economy is doing what it is doing. So, always find some winners, some people leading the economy and the earning trajectory.
Sector-wise, BFSI stands out as a nice beneficiary on multiple fronts. The core hypothesis remains intact as long as we have nominal GDP growth in double digits, the lending piece in place, credit demand in place and lenders also benefit. India is generating far more income and a lot of this income is available for savings. We also have an advantage for capital account convertibility which allows this money to be retained in India for domestic savings, so that helps the capital market piece, maybe the asset management company, the broking businesses, wealth management business because finally, that money comes back to Indian financial markets in whichever shape and form for investment.
So, BFSI is some sort of a beneficiary on this sectoral front.
