Corporate earnings are likely to grow at an average rate of 16% over the next two years helped by various factors including rise in public investments, particularly towards infrastructure, says a report. "We are expecting compound annual growth rate of 16% for both the BSE Sensex and the broad market for financial years 2016-18," global financial services firm Morgan Stanley said in a report.
"The earnings growth cycle is turning...Growth is likely to accelerate in the coming months from around 0% to double digits," it said. As per the report, the positive real rates have helped bring down the current account and are positively affecting the mix of household saving towards financial saving. Besides, rising public investments, specially in infrastructure, are among the factors favouring earnings growth.
"Households are also leveraging up balance sheets, which is promising for consumption," it said. However, the report noted that an anaemic private capex, weak global growth as well as high corporate financial leverage and interest costs which are draining profits, are headwinds to earnings recovery. Besides, the Morgan Stanley noted that Indian equities are seeing a strong boost from the rising domestic saving in equities.
"We think that the domestic savings pool in equities is at the beginning of a structural uptrend, which could lead to $300 bn into equities in the coming 10 years," Morgan Stanley said.