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BNP Paribas expects India to grow the fastest among major world economies

In terms of the outlook for corporate earnings, as per the report, the consensus estimate for overall earnings growth is 15.6% year-on-year for FY24 with a chunk of the contribution coming from financials (5.4%), consumer discretionary (2.7%) and IT (2.1%).  AFP Premium
In terms of the outlook for corporate earnings, as per the report, the consensus estimate for overall earnings growth is 15.6% year-on-year for FY24 with a chunk of the contribution coming from financials (5.4%), consumer discretionary (2.7%) and IT (2.1%).  AFP 

  • The BNP Paribas report observes that the inflation issue in India is much lower, compared with developed countries mostly due to the composition of the CPI (consumer price index), where the reliance on food inflation is higher

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India is expected to be the fastest growing economy among the major economies such as the US, the UK, Japan, Germany, France, China, Italy and Spain, going by the BNP Paribas India Strategy Report. The report summarizes the discussions held during the India Equity Roundtable 2022 hosted by BNP Paribas on September 2022.

The report also observes that the inflation issue in India is much lower, compared with developed countries mostly due to the composition of the CPI (consumer price index), where the reliance on food inflation is higher. BNP Paribas holds the view that raw material costs have cooled and this should ease the trade deficit. As per the report, “recessionary fears present a weaker backdrop for global risk assets, and the global outlook remains abnormally uncertain". BNP Paribas expects the quantum of tightening by the Fed to double starting September 2022, at $95 billion, which should hamper overall market liquidity.

On the rupee front, the expectation is that high current account deficit along with potential FPI outflows, will likely keep the depreciating bias on the Indian currency. 

In terms of the outlook for corporate earnings, as per the report, the consensus estimate for overall earnings growth is 15.6% year-on-year for FY24 with a chunk of the contribution coming from financials (5.4%), consumer discretionary (2.7%) and IT (2.1%). The sectors with the least contribution are likely to be utilities, healthcare and industrials. So, what lies ahead according to the report? The bond yield at 7.2% is above the earnings yield of 5.2% - indicating relative attractiveness of bonds over equities. “Historically at this level, market returns in the next one year have remained muted and thus warrants caution." The report notes that India’s valuation premium to its Asian peers remain near all-time high. Given the slowing global demand, lofty market valuations, a slowdown in retail flows and lack of positive catalyst for their earnings estimates, BNP Paribas remains cautious on the overall market returns in the near term.

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