Comments
Valuations near historical highs imply that the market is pricing in sharper earnings growth than is likely, said a UBS report. The risk-reward for the market remains unattractive at current levels, it added.
According to the UBS Evidence Lab USA C-Suite survey, India Inc expects high single-digit growth in demand with no margin pressure, despite also expecting higher interest rates. “The results do not suggest a capex uptick to support long-term growth. These suggest a recovery, but not yet a sharp one,” said the report.
Consensus expectations of 20 per cent+ Nifty earnings growth in FY19-20 could see cuts, it added.
Smaller firms (beyond the BSE-500) are less hopeful, reflecting the broader economy beyond the listed universe or possibly the formalisation trend. Both rural and export demand expectations are somewhat more moderate than overall demand, the report added.
“Firms expect profit margins to be somewhat higher or about the same. This is surprising given commodity price trends and firms’ own expectations of 5.5-6 per cent inflation and a moderate increase in interest rates,” UBS analysts observed.
Promising hiring outlook
However, according its survey, hiring outlook is relatively robust. Half of the surveyed firms expect the pace of hiring to be faster compared to last year. Their hiring plans are in line with expectations of changes in demand. “Future increases in hiring will likely be more for temporary jobs, also reflecting the job quality problem and the resulting ‘slowing middle’ in India, it said. Nearly two-thirds of the surveyed firms expect salaries to increase less than 10 per cent, the report added.
Many firms were unaware of AI/blockchain, and many others have not invested in these areas. New automation techniques have yet to impact hiring plans.
No capex spend
UBS Evidence Lab’s C-suite survey indicates few firms needed new investments to expand capacity in the past 12 months.
“Only a modest increase in capex seems to be on the cards, with many firms expecting capex to remain unchanged or increase by less than 5 per cent.” A capex increase of 5 per cent compared to demand growth of 8 per cent suggests no pick-up yet, especially to meet long-term demand, the report said, and added the availability of financing appears to be less of a constraint than 6-12 months ago.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.