This earnings season will matter for two important reasons.
First, most economists expect the Indian economy to regain some momentum in the second quarter of the current fiscal year after five consecutive quarters of slowing down. Many monthly indicators of consumption have been cited to support this contention. The latest trade numbers are also looking better. The corporate results that will be announced in the coming days will provide further data points to understand what is happening to the economy, especially when some key input costs have increased.
Second, domestic investors have been pouring money into Indian equities through systematic investment plans. There has been a structural shift in the way Indians save. The ongoing rally in share prices is being powered by ample liquidity rather than corporate fundamentals. Valuations look stretched since earnings growth has still been weak. The second quarter earnings will tell us whether the market rally will now have stronger foundations—or whether investors will get burned down the line.
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