JPMorgan pegs FY16 earnings growth at just 6%

MUMBAI: US investment house JPMorgan said current earnings growth expectations of 11 per cent for Sensex (30 companies) in the current fiscal year and 20 per cent in fiscal 2017 appear "frothy" considering the macroeconomic backdrop. "We expect 6 per cent earnings growth for FY16 and 15 per cent for FY17," said Bharat Iyer, managing director and head of equity research at JPMorgan India.The broad market in the country currently trades at 17 times one year forward earnings – one standard deviation higher than historic mean.

Earnings have been flat over the first half of this fiscal year, and the US brokerage expects the earnings downgrade cycle to continue for another quarter or two. Consumer discretionary, industrials and materials sectors appear particularly vulnerable, it said. JP Morgan said it prefers to participate in the potential economic recovery story through high-quality financials with a solid capital and liability franchise such as HDFC Bank and Kotak.

The government’s early cycle investment priorities should aid the cement sector, it said. Lower global energy prices should benefit both the cement and downstream energy sectors, it added. UltraTech and BPCL should be key beneficiaries.

Infosys is likely to benefit from the revival in the US growth momentum and a strengthening US dollar, while the new management’s strategy and initial delivery have been encouraging, JP Morgan said.