Corporate India has weathered the fallout from the U.S. and Israeli war with Iran better than expected, quarterly earnings suggest, strengthening the case for a rebound in the country's long-underperforming equities market.
While companies ranging from Reliance Industries to Hindustan Unilever and IndiGo airline did face pressure from higher input costs and supply-chain disruptions during the April-June period, earnings across much of corporate India have exceeded expectations.
"The strong first-quarter results and better-than-expected performance in several sectors should provide greater comfort to the market's earnings outlook," brokerage Kotak Institutional Equities said in a July 26 note.
A little over halfway through the reporting season, net profit at Nifty 50 companies has risen 11% from a year earlier and is tracking 3.5% above expectations, Kotak said.
The brokerage expects full-year profit growth of 18% for companies in the index.
Tepid single-digit earnings growth has weighed on sentiment towards Indian equities over the past two years, prompting foreign investors to question the market's rich valuations.
The Nifty 50 index is trading at 19.1 times one-year forward earnings, marginally below its 10-year average.
With profit growth now expected to recover into the mid-teens, fund managers are starting to give India a fresh look, Reuters reporters Nimesh Vora, Bharath Rajeswaran and Jaspreet Kalra said in this analysis.
India is also benefiting from a reversal of the crowded AI trade, helping fuel a rally in battered IT services stocks. Is India the ultimate anti-AI trade? Read this Reuters Open Interest column by Manishi Raychaudhuri.
First-quarter results have been ahead of expectations, although subdued on an absolute basis, Citi analysts said in a note on July 30, adding that Indian equities have outperformed in July. "Further outperformance from here requires broadening of the AI-trade and sustained improvement in the domestic demand environment," Citi said.
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