Corporate profits are expected to grow 17% to 20% year-on-year in the July-September quarter of FY27, building on 15% to 16% growth in the previous quarter, according to Prateek Nigudkar, Senior Fund Manager at Sriram AMC.
Nigudkar said the recent sell-off in the broader market was being driven more by macroeconomic concerns than by a deterioration in corporate earnings.
With profits continuing to grow at around 15% to 18%, investor concerns are centred on interest rates and global capital flows, he said.
Higher bond yields weigh on valuations
US Treasury yields and global bond yields have risen sharply in recent weeks, pushing up the risk-free rate and affecting how investors value future earnings.
Higher interest rates reduce the present value of future profits, which in turn puts pressure on valuations, Nigudkar said.
He added that the earnings outlook itself remained relatively strong despite the broader market correction.
Private banks emerge as a value pocket
Nigudkar said private-sector banks are among the areas where valuations have become attractive following the market correction.
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Sriram AMC’s Prateek Nigudkar projects 17-20% September quarter profit growth, favours private banks
“We do think that private banks in particular offer very reasonable valuations at the moment,” he said.
Concerns around net interest margins have eased following the rate-hike cycle, while loan growth and deposits have rebounded, he said.
Most lenders are also reporting credit costs at decade-low levels, leaving the sector’s near-term performance largely dependent on whether selling by overseas investors begins to ease.
Auto sector sees strong volumes
Capital is also being allocated towards the automobile sector, which has benefited from strong volumes and pent-up demand following last year’s goods and services tax rate cuts.
The key factor to watch in the upcoming earnings season will be margins, Nigudkar said.
While volume growth remained strong in the first quarter, several companies faced pressure on margins. Investors will now be watching whether companies can pass on higher costs through price increases without hurting demand.
Life insurers benefit from product mix shift
Within financials, life insurance companies are also well placed, according to Nigudkar.
The sector is seeing a shift towards higher-margin non-participating and term insurance products following recent tax rate changes, which could support profitability.
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