Will Rising Interest Rates and Subdued Corporate Earnings Dampen Fiscal 23?

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Markets ended fiscal 2021-2022 on a strong note, with frontline S&P BSE Sensex and Nifty 50 indices up 18 percent and 19 percent, respectively. After markets posted double-digit returns for a second straight year, analysts expect the next 12 months will remain turbulent as higher inflation and rising interest rates weigh on stock markets. Analysts expect inflationary pressures are likely to cast a shadow over India Inc’s earnings this fiscal year despite the resumption of economic activity. Corporate profitability remains at stake as companies hesitate to raise prices.

Against this backdrop, several brokerage firms have downgraded earnings prospects as companies face increased pressure on margins. Morgan Stanley cut its FY23 earnings growth forecast by 8 percent. Meanwhile, Motilal Oswal has also cut earnings estimates for automakers on fuel price hikes. Geojit Financial Services’ Vinod Nair warns of margin pressures and subdued consumer sentiment to lower roadmap for FY23 earnings. As global central banks raise interest rates, India too will walk a fine line to control inflation and maintain sustainable growth. The Reserve Bank of India will hold six Monetary Policy Committee meetings in FY23 on April 6-8. Although analysts expect the central bank to delay rate hikes for the second half of FY23, investors will keep an eye on the RBI’s comment on the inflation forecast. On the other hand, after a blockbuster in FY22 for the primary markets, more than fifty companies will go public in FY23 to raise capital, including the long-awaited IPO of LIC. However, some analysts think equities will remain a cheap bet in FY23 as markets have priced in the bad news. Manish Jain, fund manager at Ambit Asset Management, believes strong rural demand and credit growth will propel markets.

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