Earnings of India Inc have not disappointed
SummaryHealthy macroeconomic fundamentals have underpinned their growth in the last quarter, but the possibility of El Nino and developed economies slipping into a recession pose risks
One worry that has troubled observers about Indian shares trading near their all-time peaks is that corporate earnings have seemed to lag. The earnings season just ended, however, would help allay some of those worries. India Inc’s report card for the three months ended 31 March has been good, with financials and automobile sectors featuring among the top performers. Margins for banks have gone up thanks to increases in lending rates tracking the rapid rate hikes in the Reserve Bank of India’s (RBI) policy rates. With bad loans down, bank balance sheets cleaned up and credit growing at mid-teen rates, money has been flying off bank counters in spite of borrowings getting costlier. Of course, deposit rates have been raised too, but they typically tail lending rates on the way up so that bank profitability isn’t hurt. With RBI keeping its eyes glued to inflation, a reversal in its policy may yet be far, which could enable a sustained outperformance for lenders.