Do it yourself

The latest earnings season has started on a very buoyant note, led by some IT companies. In line with the high speed macro indicators, most brokerages have upgraded their earnings estimates in past one month. The present estimates are building in a very strong earnings recovery over FY22-FY23. The estimates for the current year FY21 have also been upgraded sharply from a contraction of 5% to 12% to a growth of 5% to 12%. Currently, the market is estimating an earnings growth of 24% to 38% in FY22 and another 18% to 22% growth in FY23. It is important to note that these estimates assume GDP growth of -7% to -7.5% in FY21; 9% to10% in FY22 and 4 to 5.5% in FY23; interest rate bottoming in FY21 and elevated inflation of 5 to 6% over FY22 and FY23. This implies less than 3% CAGR of GDP over three year period of FY20-FY23. Whereas, the present estimates imply ~19% CAGR in Nifty EPS over FY20-FY23. Apparently, there is disconnect between the macro forecast and earnings forecast. In past ...

The precipitous fall in 1QFY21 GDP has attracted attention of most people. The economic managers of the government have sought to pass 23.9% yoy contraction in real GDP as an exceptional event which is direct outcome of the global lockdown due to outbreak of COVID-19 pandemic. Indubitably, the contraction is a non recurring event and may not be a trend beyond FY21. Nonetheless, adjusted for lockdown also, the current slowdown does not appear be entirely cyclical. It certainly has some element of structural weakness in the economy. I have highlighted this issue earlier also. In my view, the fall in nominal GDP is more worrisome than the real GDP. This fall has been more consistent and sharp in past 7 years. The nominal GDP growth rate has almost halved during FYFY13 and FY20. For common man nominal GDP is more important because lot of variables like effective taxation, budgetary allocations for development and social welfare, subsidies, salaries of public servants, etc are cal...

As I indicated yesterday (see here), the advance estimates of FY20 GDP are at significant variance from the estimates used for the setting budget targets in July. The union budget for FY20 presented in July 2019 has apparently estimated nominal GDP growth at 12.2% for the purposes of calculating deficit and revenue. A 40% lower nominal GDP growth could distort the entire fiscal maths of the government. For example, consider the following: The union budget estimated the central fiscal deficit for FY20 to be Rs7.04trn or 3.3% of the GDP. This implies a nominal GDP of Rs213.26trn. As per the revised estimates, the nominal GDP for FY20 may be Rs204.42trn only. As per the latest reports ( see here ) the actual fiscal deficit of the central government was already at Rs7.53trn (or 3.7% of the advance estimates of GDP) by the end of November 2019. This implies any one or more of the following three scenarios materializing: (i)     The governm...