12-15% earnings growth likely in FY26-27; PSBs and select commodity stocks offer value: Gautam Duggad
You Might Also Like:
Expect a lot of wealth creation in equity market over next 5 years: Gautam Duggad
You Might Also Like:
FY26 earnings growth to rebound to 12-13% for Nifty 50 companies: Varun Goel
(You can now subscribe to our
(You can now subscribe to our ETMarkets WhatsApp channel
, Head Of Research, Director - Institutional Equities,, says the fourth quarter of FY25 showed strong earnings. It surpassed previous quarters. Growth reached 10% against a 2% expectation. Most sectors and companies exceeded forecasts. Midcaps led with 19% earnings growth. Largecaps also posted 10% growth. Government capex spending increased significantly in March and April. Commodity prices remain a concern. Overall, a 12-15% earnings growth is expected for FY26-27.Duggad further says that despite a significant rally in PSU market capitalization, the PSU index's PE ratio remains elevated at 14-15, exceeding its historical average. Defence stocks are trading at high PE ratios of 40-50, limiting further rerating potential. PSU banks and select commodity stocks are the only areas within the PSU sector offering reasonable valuations.I beg to differ. Q4 was a very strong quarter. The spread, the quality, the number of beats that we have seen in this quarter we have not seen in any quarter of FY25. This is the best quarter of FY25. We have exited a very good momentum. Compared to an expectation of 2%, we got 10% growth. Out of 22 sectors for which we forecast earnings, 19 delivered numbers which are better or ahead of expectations.Out of 300 companies that we forecast earnings for, 220, that is roughly 75% of the coverage universe, have delivered numbers either in line or ahead of expectations. This is a far better number because this number usually is between 60% and 65%. So whichever way you slice and dice the earnings, the fourth quarter was one of the best quarters that we have had both from an absolute earnings point of view as well as the spread and quality and internals of that corporate performance.In fact, if you dig slightly deeper, out of the 10% earnings growth, midcaps earnings have grown at 19% in our coverage universe and we cover 100 midcaps. Around 85 to 90 largecaps posted 10% earnings growth. And smallcap earnings were flat, except financials. So, the fourth quarter earnings have set the pace now. We are entering FY26 with a good momentum.There is a lot of support from the macros coming in. RBI delivering 100 basis point rate cut, government cutting income tax rate, inflation trending close to 3%, that leaves more room for RBI in second quarter of FY26 to cut another 25-50 basis points. Liquidity conditions are improving. GST data is strong. Your E-Way bill numbers are strong. So, 12% to 15% earnings growth is not a very far-fetched expectation to have. Yes, the sectoral mix within that 12-15% expectation that we have might change along the way. Some other sectors will contribute versus what we are thinking right now.But broadly, I would also expect the capex cycle to revive. The large part of FY25 is spent on the slowdown in capex. But look at the March numbers. The government spent Rs 2.4 lakh crore. For context, this number was the total annual spend in FY25 which we now spend in one month. April also began on a strong note. We spent 1.6 lakh crore in capex. So, between March and April, we spent close to Rs 4 lakh crore. Slowly, capex spending will also come back in.It might grow at 10-11% or maybe slightly higher because the government has budgeted about 10% growth for FY26 at about Rs 11.5 lakh crore; we closed at Rs 10.5 lakh crore last year versus budgeted estimate of Rs 10.2 lakh crore. Nobody would have thought that the government will exceed the capex spend for FY25 if you had asked them in February or even the first week of March. So, March came like that big slog over where the government completely achieved the target and exceeded by 2-3%.So, those are some of the contributing factors for earnings in my view. The only place where we have our reservations is on global commodities because they are completely difficult to forecast. The underlying mark to market on the commodity prices basis the moment that we are seeing in commodities that takes a huge toll on Nifty earnings because commodities contribute 20% of the profit pool. If you look at the number ex of commodities, even FY25 Nifty earnings growth is about 10%, and that is giving us the confidence that given the many parameters which are in play at both macro and micro level on consumption, capex, financials, the 12-15% earnings growth that we are projecting for FY25 to FY27 is in the realm of achievement.When you look at PSUs, there are the cohorts – multiple subsegments within that. There is banking, utility, commodity and defence. If you look at defence, on July 24, the peak defence market cap was close to Rs 11 lakh crore. From there to February 25, the market cap came down to Rs 7 lakh crore, almost a 35% decline. Now between February to June that is a four-month period, the market cap has crossed the previous high of Rs 11 lakh crore.Now, it is almost trending towards Rs 11.5-12 lakh crore. So, there has been a 70% increase in market cap in four months for defence PSUs. A large part of the defence market cap is contributed by PSUs. In the same breath, railways have had a phenomenal rally from 2021 to 2024. The combined market cap of a railway plus defence used to be Rs 2 lakh crore in July '21. It went to Rs 18 lakh crore in July '24. From there, both the sectors had corrected.Within that, defence has rallied and crossed its earlier peak but the Railways is still to cross it. PSU banks have been flatlining for almost a year now. So, where are we positive? We are positive on select PSU banks, which is why I am still overweight on PSUs in our model portfolio in financials, even though our bigger overweight stems from non-lending financials and capital market plays where we are far more bullish. Then, selectively in commodities, we like Coal India, Power Grid. One cannot have a basket approach because of the underlying undervaluation of PSUs prevailing in 2020. A large part of that got corrected between 2020 and 2024.A year-and-a-half back, we had detailed in the PSU strategy note where we said that despite the big rally in the market cap for PSU companies, the PSU index was still trading at 14-15 PE while its average used to be eight-nine times. I do not think the PE has more room for rerating, even in defence stocks now because now even defence stocks are trading at 40-50 PE. The only place where valuations are reasonable in PSU space today is PSU bank and some commodity stocks.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
&w=3840&q=100)
Business Standard
an hour ago
- Business Standard
Nearly a decade into its existence, IBC framework needs to be reimagined
The famous "tareekh pe tareekh" dialogue from the Hindi movie Damini captures where we are now premium Raghu Mohan Abhijit Lele Listen to This Article 'A comprehensive law like the IBC is often viewed as a last resort by lenders — an avenue that needs to be explored after exhausting all alternatives. However, this view stems from the lack of a comprehensive vision for the future of a beleaguered borrower,' noted Rajeshwar Rao, deputy governor, Reserve Bank of India (RBI), at a conference on bankruptcy in Ahmedabad (May 6, 2022). His observation — five years after the Insolvency and Bankruptcy Code came into being — was a pointer to the convergence of opinion that outcomes under this architecture have not turned out the way it
&w=3840&q=100)
Business Standard
an hour ago
- Business Standard
Digital personal data protection law brings change and challenges
With the notification of rules under the Digital Personal Data Protection (DPDP) Act (2023) expected soon, India is preparing for a landmark shift in how personal data is handled. While the Act promises to empower users and strengthen data governance, it also raises a range of implementation challenges. For businesses, regulators, and consumers, navigating this transition will require thoughtful planning and coordination. At the heart of the Act lies the principle of consent. The Act gives individuals — or data principals — the right to decide how their personal data is collected and used. For many businesses, this means reworking longstanding data practices. Consent must now be explicit, informed, and revocable — a shift from earlier models based on implied consent or bundled terms. For fintech, ecommerce, and digital platforms, where data is central, this could be disruptive. Organisations must invest in user-friendly consent mechanisms, communicate clearly, and embed privacy into the product experience. Many entities — credit bureaus, telecom companies, utilities — process personal data under sectoral mandates that sometimes conflict with DPDP provisions. For instance, if the Reserve Bank of India (RBI) mandates retention of financial data, can an individual still demand erasure under DPDP? Such overlaps highlight the need for harmonised guidance across regulators such as RBI, the Securities and Exchange Board of India, and the Unique Identification Authority of India. Without this, businesses may face legal uncertainty. The regulatory framework must evolve to provide clarity and consistency in resolving conflicting obligations with clear timelines and coordinated enforcement across sectors to reduce compliance burdens. The Act demands embedding privacy into technology systems. Platforms must now support data traceability, granular user controls, and revocable consent — capabilities that many legacy systems lack. The Act allows the central government to restrict the transfer of personal data to certain countries. While pragmatic, this complicates compliance for companies that use global Cloud infrastructure. Organisations must prepare for data localisation or ensure their Cloud providers can adapt quickly to restrictions. Anonymised data is excluded from the DPDP's scope. However, modern analytics and artificial intelligence tools often use pseudonymised or anonymised data to create profiles. While technically outside the Act, such practices can still generate inferences about individuals. To prevent loopholes, the government may need to issue clarifications or bring legislation that addresses the use of anonymised data. The Act mandates data breach notifications, but the specifics remain unclear. Should companies notify for suspected breaches according to Indian Computer Emergency Response Team (Cert-In), or only after confirmation? How can they balance transparency with the avoidance of unnecessary panic? Clear guidance is needed on what qualifies as a breach, how quickly to report, and when to inform data principals. This will help organisations respond with confidence and consistency. The Data Protection Board will intervene in unresolved disputes. With the Act imposing significant penalties, individuals may be more inclined to escalate complaints or approach the courts. This could lead to increased litigation, especially over systemic data practices. India might consider sector-specific redress forums or fast-track digital tribunals to prevent courts from becoming overwhelmed. India can learn from Singapore's Personal Data Protection Act, which has achieved a balanced approach. Features like phased implementation, sector-specific rules, and emphasis on organisational accountability have enabled smoother compliance and innovation. The DPDP Act is critical for protecting digital rights. However, success will lie in its implementation. With regulatory clarity, user-centric design, and coordinated efforts across sectors, India has the opportunity to become a global benchmark for data privacy and trust.
The Print
2 hours ago
- The Print
BRISKPE plans to add payments infra for small cooperative banks, SFBs
The PAYU-backed BRISKPE received RBI approval for facilitating cross-border payments early this year. The RBI's in-principle approval for both export and import cross-border payments will be instrumental in driving this growth as the company can offer a digital-first, fully compliant import payment solution, Sanjay Tripathy, CEO and Co-founder, BRISKPE, said. Mumbai, Jul 12 (PTI) Cross-border payments platform BRISKPE plans to add payments infrastructure for small cooperative banks and small finance banks as it aims to more than 1 lakh international transactions per month by the next fiscal-end, a top company official said. BRISKPE plans to add payments infrastructure for small cooperative banks and small finance banks thereby creating a one-stop ecosystem that supports MSMEs throughout their global trade journey, Tripathy said. Global investment firm Prosus-backed BRISKPE aims to facilitate over 1,00,000 international transactions per month by next financial year end. Currently, the platform receives 50 per cent of its revenue from small B2B goods exporters. The increase in monthly transactions will help the company to diversify its revenue with new value-added services and drive strong, sustainable growth, the CEO said. PTI HG MR MR This report is auto-generated from PTI news service. ThePrint holds no responsibility for its content.
