Tushar Pradhan, CIO, HSBC AMC
Of the 34 companies from the Nifty 50 that have reported their Q3FY18 earnings, in most cases, earnings have been 500-1,000 basis points higher than Street’s estimates. As far as sectors are concerned, the commodity pack has done well on the back of an improvement in global prices. Consumer discretionary is another pocket that has performed well following a robust pick-up in demand. Not surprising that analysts expect the momentum to continue and are revising earnings expectations upwards for the fourth quarter. However, we are facing the possibility of global headwinds going ahead. The rise in interest rates in the US can have an effect on how global asset managers allocate their capital and that can weigh down the equity market. Thankfully, the domestic story looks intact and we are likely to see strong growth in the next fiscal. If the third quarter momentum continues to spill over into the fourth, it is unlikely that we will see any downgrades to FY19 earnings estimates.
Aneesh Srivastava, CIO, IDBI Federal Life Insurance
The Street’s expectation about robust growth at over 20% in FY19 seems misplaced. The strong performance in Q3FY18 comes on the back of a low-base effect as Q3FY17 was affected by demonetisation. Economic recovery can happen in two ways: through revenue expenditure and capex. We haven’t seen any concrete signs of private capex picking up. Government capex alone cannot help in sustaining strong economic growth. Besides, growth driven by revenue expenditure is not sustainable, as it creates employment or consumption only for a brief time. It is also inflationary in nature. We need capex so that productive capacity comes on stream for sustained economic growth. While fiscal policy will try to stimulate growth, monetary policy will step in to curb inflationary pressure. The possibility of the Fed reversing its stance on interest rates is not a good sign either. Hence, there is a higher possibility of downward revision to FY19 earnings estimates.