We expect 15% earnings growth in FY19; cautions over inflation effect on auto ancillaries
Saurabh Mukherjea, Ambit Capital
Dec 22, 2017 | Source: CNBC-TV18
A year ago my view was that it will be a difficult year for the stock market; it has turned out to be anything but. My view is that 2018 at the market level, we are pretty fully priced. We do expect a pickup in GDP growth next year, we expect 7 percent GDP growth in FY19 and we expect FY19 to be the first year after five years of double digit earnings growth, 15 percent earnings growth is our expectation for FY19.
It is reasonably clear that both through a combination of determined efforts on the governments part, the PSU recapitalisation, I think there will be a good fiscal stimulus also that we will see on February 1, the GST rollback I think is a major fiscal stimulus, it is already I think showing results in terms of a pickup in the economy. So there are determined efforts on the government's part plus there is synchronised global recovery. So there is very little doubt that -- GDP growth and earnings growth, both will come through.
On the possibility of more rural schemes to boost farmer income: Yes, there is bound to be a rural stimulus in the 12 month run up to elections. Every Indian government does it and I don't think February 1 will be too different from the template that has been set in the past.
There are far stronger themes to play and play profitably in the longer run rather than focus on what exactly will be the flavour of the season if the government opens the tap for rural India.
On formalisation, less black money theme: Stock specific calls apart, what we have done with and to great effect over the last couple of years is identified several sectors where the sector is primarily black, the core of the supply in the sector comes from informal supplies and the sector happens to have couple of large players listed who are white money formalised players. So, that theme has worked very well, actually it has worked well in the last two years but if I look back at the last 20 years in India, a lot of the star stories, the success stories of our market are around that.
So, in Unusual Billionaires, my book from a year ago, several of the success stories in Unusual Billionaires are players say in cooking oil, in hair oil, in pipes, in paints, who early on formalised what was an informal sector. I think you can apply the same construct to plywood, to adhesives, to sanitaryware, to electricals, and so on and so forth. Find organised players in unorganised sectors, make sure that the organised player is clean, wellrun, bet on that company, and just stay invested, you will make a lot of money.