The earnings season so far has been insipid. Corporate performance in the first three months of this fiscal is totally out of sync with what is happening in the broader economy—grey clouds against bright sky.
The Nifty firms that reported their quarterly numbers till the end of last week collectively saw net profits fall, as input and wage costs grew faster than sales. Companies may have to raise prices to protect margins, though such renewed flexing of pricing muscle will add to inflationary pressures.
Investors in Indian stocks are clearly banking on strong earnings growth this year, as is evident from the fact that the market is priced at around 18 times FY11 earnings against a historical price-earnings multiple of around 15.
India is one of the few islands of growth in a recession-stricken world. But stocks may have to float on the froth of liquidity till the earnings engine revs up again.