FY27 Earnings Outlook: The senior vice president of equity at UTI Asset Management, Karthikraj Lakshmanan, shared his insights on ET Now on how crude oil remains the key macro variable, why FY27 still looks strong for earnings growth, and how sectors like financials, IT, and healthcare are positioned. He further discussed about the valuation risks in capital goods, the impact of AI on IT services, and why private banks continue to remain structurally attractive despite heavy domestic ownership. Here’s what you should know.
FY27 Earnings Outlook: Could there be earnings cut because of higher crude prices?
The Iran-US conflict happened, and the crude prices have been high since then, for more than 3 months now. And that is a micro impact to some extent. It could impact our current account deficit, inflation, and maybe, to some extent, a little bit of GDP.
But broadly, we are still much better compared to say 2013, when we had sharp rupee depreciation. Compared to that, we are in a much better shape and should not have too much of an impact.
Speaking about whether there can be some earnings cut because of higher crude prices, the expert said that it is quite possible, but still a good possibility that we have a double-digit earnings growth in FY27.
Do you need to watch out for crude oil prices?
According to UTI AMC’s Karthikraj Lakshmanan, looking at FI 27, given that it all seems more bullish than the street at this point, but there could be some cut there in the earnings, at least from a large cap or a Nifty perspective.
Other than that, there could be pockets that are impacted by higher crude and commodity prices and to that extent, there is some profit impact, but the nominal growth of the revenue growth could be much higher because of the inflation coming back and overall nominal numbers themselves being better.
Private banks’ long-term growth potential & long-term ROE
So if you look at the private banks, when you look at the long-term growth potential and the long-term ROEs, the current valuations are quite attractive compared to their own trading history as well as even what the companies can deliver. These are the private banks, especially, that can grow higher than the nominal GDP for a very long time, which is what they’ve shown even in the last three decades.
So to that extent, there is enough valuation comfort and even from a near-term perspective, as the interest rate starts to kind of inch up, the private banks should be much better off in a rising interest environment. But the longer-term thesis clearly suggests that the valuations are attractive, and they are a high-growth segment with good profitability. From a sector perspective, again, we continue to be positive on private banks, said Karthikraj Lakshmanan.
Crude price rising challenge on sectors like IT and healthcare
Karthikraj Lakshmanan said that he maintains an overweight rating on IT, contrary to the call that the valuations are quite attractive. He further added that if he sees just the dividend yield and the rupee depreciation. The ask rate for growth is quite minimal for most of these companies, and to that extent, that is another segment.
IT sector companies have very high ROCs and cash flows, and they’re returning the majority of the cash flows in the form of dividends and buybacks, and to that extent, they are very strong on dividend yield.
Within the consumer pack, the expert continues to be more positive on the durables and retail side and underweight on staples. Healthcare is something that is again looking strong. The exporters benefit from a rupee depreciation. Domestically, the IPM growth could be strong and probably a double-digit growth in the domestic business.
Hospitals have continued to deliver good growth in the last few years post-COVID. So that’s another space which looks clearly positive.
