Anand Shah's perspective: Earnings surge and manufacturing revival spark hope for jobs and income

ICICI Pru's Anand Shah predicts a promising future: India's robust manufacturing growth, broad-based earnings surge, and policy support signal more jobs and higher incomes ahead.

 Anand Shah paints a positive picture

Wondering about the sustainability of the current market levels? Anand Shah from ICICI Pru has a reassuring perspective. While the stock market is experiencing significant peaks, the more significant query is whether this signifies the commencement of a fresh bullish phase.

However, as the valuations aren't at an all-time high, it suggests a lack of euphoria in the market.

Highlights -

  • India doubles earnings growth within just 24 months, leading to an upswing in the market.

  • Alongside B2C enterprises, B2B companies have also stepped into the limelight.

  • As China's dominance in manufacturing recedes, India's manufacturing sector is experiencing a powerful resurgence.

  • The downward trajectory of inflation and the easing of the current account deficit result in sustained growth and stability.

Earnings boost and macroeconomic outlook

What's been fuelling the market's positive trend is the encouraging surge in earnings. Ever since the market peak in October 2021, earnings have been climbing.

Over the last two years, whether it's large-caps, mid-caps, or small-caps, earnings growth has been outstanding. In fact, earnings have nearly doubled within 24 months, while markets have risen only by around 15-20%. This correction in price-to-earnings multiples over the same period signifies a robust and healthy rally, not just irrational enthusiasm.

A broader perspective on earnings growth

A notable aspect of this growth is its broad base. While Business-to-Consumer (B2C) companies were previously the main contributors to earnings growth, Business-to-Business (B2B) companies have now joined the ranks. This shift indicates robust activity across companies, sectors, and the economy.

Also Read - Nifty50 reaching 20,000 points! Experts' advice on smart moves for mutual fund investors.

Manufacturing's ascendancy and economic prospects

Another factor contributing to this positive trend is the rise of India's manufacturing sector. As China's role as the world's factory diminishes, India's manufacturing and corporate banking sectors are benefiting. Post-pandemic growth in "gross fixed capital formation" (GFCF) and upscale discretionary consumption are driving the recovery. The government's capital expenditure and policies, like the Production-Linked Incentive (PLI) program, support this trajectory.


A shift in opportunity

Today, smaller businesses are better poised to ride the economic upswing. Previously, large-caps dominated, but now, the mid-cap and small-cap segments take the spotlight. Think manufacturing-related industries, including steel, cement, aviation, and ancillary businesses driving growth. Even the housing sector contributes substantially.

The takeaway - A bright future ahead

Inflation is tapering off, and food prices are calming down. The decrease in the current account deficit (CAD) results from lower oil prices and sturdy growth in service exports. With all these positive markers, we're looking at a virtuous cycle ahead. More consumption, increased capital expenditure, job creation, and higher incomes are the chapters of this promising story.

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Also Read - RBI Holds Repo Rate At 6.5%: What You Should Know About The Impact On Borrowers, Markets, And Inflation Outlook


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