RIL, HDFC, L&T may log double-digit earnings growth

The earnings yield curve and earnings growth curve of several large-cap stocks indicate they are in a sweet spot for stock picking, said ICICI Securities.

Earnings growth expectations of companies such as RIL, Zee, HDFC, L&T, Dr. Reddy’s and Tata Communications, among others, over FY22-24 could exceed or keep pace with the nominal GDP growth of around 13%, according to the brokerage.

“Earnings yield curve and earnings growth curve indicate an inverse correlation between the two factors, thereby reflecting a largely rational behaviour (higher the growth expectations, lower the yield),” said ICICI Securities in a client note."

Directionally, the correlation of expected growth and earnings yield appears rational; however, due to excessive ‘optimism’ as well as ‘pessimism’, the extent to which the correlation is pushed creates irrationality at the extremes of the earnings yield curve.”