The Nifty50 earnings have been recovering from nearly a decade-long lull, where they grew just 4% between FY12 and FY19, but high P/E multiples makes market returns dependent on upgrades to FY24 earnings, Credit Suisse said in a report.

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The note highlighted that the global investment bank sees 15% growth between FY19 and FY24, which may see further upgrades.

While Nifty earnings are only weakly correlated with the domestic economy, a substantial GDP upgrade should help offset risks. “In our view, a 5% upgrade to FY24 Nifty EPS is possible,” added the note.

Neelkanth Mishra, Co-Head of Equity Strategy, Asia Pacific and India Equity Strategist at Credit Suisse, said: “The Indian economy’s recovery has surprised positively, and in line with our earlier projections, the consensus GDP estimates are now being revised up. We expect meaningful upgrades to the FY23 GDP forecasts.

"Market moves are likely to follow the direction-of-change in FY24 earnings. In contrast to the steep downgrades that markets were used to in the pre-pandemic period, earnings forecasts for FY22 and FY23 have seen upgrades, and the same should occur for FY24 too," he said.

Infosys, SBI, L&T, Maruti Suzuki, ABB India, and Shriram Transport are among top 10 picks from Credit Suisse.

In the near futures, financials remain key to this recovery and are likely to contribute nearly half of incremental Nifty EPS FY19-24. “With the share of profits allocated to provisions hitting a 10-year low in September 2021, after peaking at 100% in FY18, this is achievable,” said the note.

Concerns have shifted to topline growth for banks, where Credit Suisse sees positive signs of a rebound as the economy recovers.

High P/E Multiple:

While P/E multiples are elevated for equities globally, India’s P/E premium is high too (but now well below the peak), and 12-month rolling outperformance had crossed 20% in Sep-2021.

This should keep sharp upward moves capped on a relative basis. On an absolute basis though, P/E can remain high, as CS global strategist Garthwaite points to ERP globally having room to fall, and even rising inflation being supportive of higher equities P/E until inflation crosses 3%.

Further, even though FII flows have been weak, particularly as prospects for several other Emerging markets (e.g., CN, TR, ZA, RU) have worsened, DII flows remain robust, with SIP flows now US$1.5 bn /month.

“As confidence in medium-term growth expectation builds, flows should sustain. We continue to prefer domestic cyclicals over global cyclicals, and are overweight on Financials, Industrials and cement, and underweight on IT, metals and discretionary in our 30-stock model portfolio,” said the note.

Credit Suisse top picks are State Bank of India, HDFC Ltd, and UltraTech Cements, and top underweights are Tata Steel, and Hero MotoCorp.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)