Customers walk past clothes on display at a Big Bazaar hypermarket, operated by Future Retail (Photographer: Dhiraj Singh/Bloomberg)

Q1 Review: Consumer-Focused Sectors Will Continue To Drive Earnings, Say Analysts

Retailers, automotive companies and non-bank lenders will continue to drive earnings in the rest of the financial year as rural demand improves. At least according to Credit Suisse and Kotak Mahindra Asset Management Company, which expect consumption to drive growth.

The upcoming festive season and a recovery in India’s micro fundamentals led by rural demand will boost earnings for sectors related to consumption, said Jitendra Gohil, head of India equity research at Credit Suisse. “If you look at the consumption sector in the first quarter, it was better than expectations. We are bullish on it. Overall, we are generally positive on micro recovery and that is what we have seen in Q1.”

Thirty-eight of the 50 Nifty companies either beat or met analysts’ earnings estimates, according to Bloomberg. That’s the highest in three quarters. If not for the loss by State Bank of India, Nifty 50 would have met the consensus forecast that the index eventually missed by 7 percent, according to BloombergQuint’s calculations.

While “valuations are not cheap and have moved into a stretched zone, as long as there is earnings growth and operating leverage plays out, it is possible that consumption as a theme could remain dominant and the key driver for earnings growth in the market”, said Shibani Sircar Kurian, head of equity research at Kotak Mahindra Asset Management Company. “The first quarter does bode well and sets the tone for the rest of the year,” she said. Kotak Mahindra AMC expects an overall earnings growth in mid-teens for the financial year.