Profit growth outlook to be main driver of market, says HDFC MF’s Gopal Agrawal

How the outlook for corporate India’s profit growth evolves going ahead could be the biggest driver of India’s equity market instead of further price-to-earnings ratio expansion, Gopal Agrawal, senior fund manager at HDFC AMC NSE -0.18 % told in an interview. The profit growth outlook looks robust at this point in time and that bodes, Agrawal added.
Edited excerpts:

profit growth

The Indian market appears to be on a sticky wicket suddenly. What is causing this sudden doubt among investors over the market’s prospects? We have had five international brokerages downgrade India, whereas Blackrock says it will be trimming its India exposure. Do you feel Indian markets will become more volatile and move sideways in 2022?

Equities have rebounded sharply post the bottom of March 2020 and that is causing some apprehensions in the mind of investors around the viability of equity investment at this point in time. However, it is worth noting that despite the sharp rally in 2020 and 2021, Nifty50 returns over the past 10 years and 15 years are around 11-13 percent CAGR, which is largely in line with nominal GDP growth. Investors must note that going forward, markets should be driven by profit growth prospects and can expect returns from equities, over the medium to long term, to be in line with overall economic growth.

We have seen a one-way rally in the market since June 2020, driven by liquidity, sharp earnings upgrade, and PE expansion. Going forth, do you feel investors’ expectations from the market will change? Will we see more focus on the delivery of expectations or do you see the market continuing to reward potential instead of results?

Going forward, while there could be limited scope for PE expansion in certain segments of the economy, markets could largely be driven by profit growth prospects. Consequently, investors can expect medium to long-term returns to be in line with overall economic growth. Post Covid-19, the corporate earnings cycle turned and the market witnessed strong results and upgrades for FY22 and FY23. The upgrades have been broad-based and driven by a revival in the profitability of corporate banks, materials, industrials, and healthcare.


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