India leads earnings growth hope in EM pack despite economic slowdown

The earnings growth estimate for the domestic market is one of the highest in the emerging market (EM) pack despite the economy going through a sluggish phase. The consensus earnings per share (EPS) growth estimate in 2020 for the Indian market is 20.3 per cent, while the same for the EM pack is 14.1 per cent. In terms of weightage, India is the fourth biggest market in the MSCI EM index, behind China, South Korea, and Taiwan. 

Corporate earnings growth expectation is the highest for South Korea, followed by India and Brazil, the data compiled by Morgan Stanley show. The brokerage is expecting double-digit market returns next year. “We see double-digit local-currency returns for the Sensex in 2020 with a comprehensive policy easing effort underway to address the deep slowdown in domestic growth and stress in the non-banking financial sector,” said Morgan Stanley in a note.

Analysts expect the tax rate cut to underpin growth. “The sharp change in tax rates, especially for new investment, should help spark a capex recovery over the next 12-18 months, while the auto cycle should show a strong recovery in H2’20 after the impact of new emissions standards in April are digested,” the brokerage adds. Meanwhile, the slowdown in export growth and stress in the financial sector could act as headwinds.