Credit Suisse sees Nifty50’s positive trajectory to be more driven by earnings than multiples in the next few years.

Decade-long lull

After nearly a decade long lull when annual growth in Nifty EPS slowed to just 4 per cent (FY12-19), it now expects 15 per cent annual growth between FY19 and FY24 (17 per cent FY22-24). It also sees a 5 per cent upgrade to the FY24 Nifty EPS, according to the latest India Market Outlook 2022 released on Thursday.

“Direction of Nifty to be driven more by changes to Nifty EPS than multiples and we expect to see Nifty EPS trajectory to be positive. We expect strong earnings growth in FY23 and FY24 which should support the market and show positive results,” Neelkanth Mishra, Managing Director, co-Head of Asia Pacific Strategy and India Equity Strategist, Credit Suisse, told BusinessLine .

Also see: Neelkanth Mishra of Credit Suisse rules out near term PE upgrade for Indian markets

Mishra added that Credit Suisse expects meaningful upgrades to GDP for FY23 and FY24 which could have a positive effect on Nifty. “Consensus GDP growth for the current fiscal is 9.5 per cent. We think growth for the full year can be 10.5–11 per cent. For FY23, consensus is around 7 per cent and we think it can be 9 per cent,” he said.

Market is expensive

At the same time, Mishra highlighted that Indian markets are now expensive and super normal returns are unlikely.

On the banking sector, Mishra said: “Almost all the incomes that banks made were being lost on provisions of prior loans. Given that bad loan provisioning is now over and most of the provisions have been provided for, we see strong growth going forward. The reason for their for weak earnings so far was high provisions.”

$30-billion inflow

To a question on India’s proposed inclusion in global bond indices and the likely resultant forex inflows, Mishra said “now that RBI have tested out Variable Rate Reverse Repo (VRRR) route, they should be able to manage the surplus liquidity that is generated without causing any disruptions”.

Also see: Indian economy recovering quickly as pandemic ebbs: Report

He pointed out that inflows (estimated at $30 billion) post India’s inclusion in Global bond indices will be progressively spread over ten months and not flow entirely in one month. By March 2023, reasonable part of flow should have happened, he added.

“If extra $30 billion comes in RBI has tools to absorb it. Rupee may not move that much”, he said.