Future Of The Economy And Corporate Earnings

Stock markets hit new highs after the nda returned to power with a bigger majority. Two months later, there are more questions than answers about the future of the economy and corporate earnings, which drive the indices.

- T. Surendar And Rajiv Bhuva

It’s raining bad news on Dalal Street though there has been a letup in the monsoon downpour in Mumbai. Since early July, the benchmark S&P BSE Sensex has lost nearly 5% of its market value. Foreign portfolio investors (FPIs) are fleeing the Indian market. The rupee is hovering below 70 against the dollar and there is a fear it might slip further. Gold prices are on the rise due to safe-haven buying. Weak corporate earnings in the June quarter, coupled with core sector growth falling to a four-month low of 2% in June, strongly suggest a slowdown.

Such a suggestion in May and June would have attracted puzzled looks. Markets were pumped over expectations of a stable government at the centre. On May 23, as news flowed in of the National Democratic Alliance under Narendra Modi returning to power with an even larger majority than 2014, the Sensex surged to a record high of 40,124.96 points. The National Stock Exchange’s Nifty 50 also breached the psychological mark of 12,000 points to hit its all-time high of 12,041.15 points. The euphoria reached a crescendo on June 4, the 10th day of Modi 2.0: The 30-share index Sensex vaulted to a new all-time high of 40,312.07 points.

Not even the festoons remain from that party now. The Sensex is barely 1,100 points above its lowest point in 2019. The short-to-medium term outlook does not look good, say experts. “In 2008, corporate profits were 7.5% of gross domestic product (GDP), which has today whittled down to less than 3%,” says Raamdeo Agrawal, joint managing director and co-founder, Motilal Oswal Financial Services. “The worst is not over yet.”