Credit Suisse said the current year’s earnings growth forecast for the benchmark could be raised 4.4 per cent if the rupee were to slide to 72 to a dollar
ET Intelligence Group: The rupee may have been among the worst performing currencies in Asia this year but the plunge may not take the Nifty’s earnings with it — if recent history were to be an accurate guide.
On three previous occasions since 2011 when the rupee fell about 10 per cent, the Nifty’s projected earnings growth was actually revised upward — by 7-12 per cent — each time. Credit Suisse said the current year’s earnings growth forecast for the benchmark could be raised 4.4 per cent if the rupee were to slide to 72 to a dollar, with the decline potentially adding Rs 19,500 crore to the total profit of the Nifty.
About half the revenues of Nifty companies are denominated in non-rupee terms, with technology, pharma, auto components, energy, and metals companies generating a significant part of their sales in one foreign currency or the other. These sectors together make up 36 per cent of the total weight of the Nifty.
Substantial earnings growth revisions may take place in the metals and IT sectors, each contributing about Rs 8,000 crore to incremental profits of the premier stock gauge.
According to the Bloomberg consensus estimate, Nifty earnings growth is estimated to be 23 per cent and 20 per cent, respectively, for 2018 and 2019. India’s projected earnings growth in local currency is one of the highest for emerging markets despite the continuous downgrades. After a brief pause in September and November last year, projected EPS growth for India has been pared down in May for the sixth month in a row.
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Although a falling rupee supports the one-year forward EPS, the performance of the Nifty in the next one year after a 10 per cent fall in the currency is generally mixed, recent trends show. Nifty’s price-earnings multiples moderated 3-12 per cent after the fall in the local unit.
