Financial stocks to drive earnings growth of Nifty50 firms: Credit Suisse

Credit Suisse is more upbeat on domestic cyclicals than global, has an overweight on financials, industrials and cement; Some of its top picks are SBI, HDFC and Ultratech

The earnings of Nifty50 firms will grow 17 per cent annually between FY22 and FY24 and financial stocks will do most of the heavy lifting, Credit Suisse said on Thursday.

This is a sharp uptick considering Nifty earnings grew at a tepid pace of just 4 per cent annually between FY12 an FY19.

“FY12-19 saw a broad-based slowdown, with bank balance-sheet cleanup, a real-estate downturn, over-supply in global generics, and weak telecom margins, among others. Several of these trends are now reversing. The key to the earnings recovery remain financials, which are to contribute nearly half of Nifty EPS FY19-24 (45% FY22-24),” said Neelkanth Mishra, Co-Head of Equity Strategy, Asia Pacific and India Equity Strategist at Credit Suisse.

Credit Suisse expects that the positive economic growth momentum seen over the last few months to continue well into 2022, “though the pace could moderate if energy import prices remain high.”

It says the market has priced in strong medium term prospects for the economy “a bit early”.

The brokerage said the market was expensive even after the latest pullback.

“Nifty price-to-earnings (P/E) is 1.5 standard deviation above its 10-year average with the equity risk premium still near historic lows. While P/E multiples are elevated for equities globally, India’s P/E premium is high too, capping relative performance. FII flows have been weak in sympathy with weakness in other EMs but DII inflows are likely to remain strong,” it observed.

Credit Suisse is more upbeat on domestic cyclicals than global cyclicals. It has an overweight on Financials, Industrials and cement, and underweight on IT, metals and discretionary. Some of its top picks are State Bank of India, HDFC and Ultratech Cement. On the other hand, Tata Steel and Hero Motocorp are its top underweights.