“Yes, this quarter we have seen revenue growth being slightly tepid but profitability growth being quite strong and the commentary that one is hearing from companies is actually quite robust and that suggests that not only for the fourth quarter but even for the ensuing year earnings trajectory is going to see tailwinds,” said Saigal.
He noted that India is in a unique market phase after nearly 16 to 18 months of underperformance relative to global emerging and developed markets. “Now, when time correction, price correction both have happened and then we are seeing a reversal in earnings as also the macro clouds that were kind of plaguing the markets, those are behind us. India is set up very nicely for the coming year. I could take the film analogy and say that India is probably going to be the Dhurandhar of emerging markets in the coming year. So, we are nicely placed and when you speak with companies also their body language, their commentary suggests that there is really nothing to be overly concerned about in this market. So, good times ahead in our judgment.”
On the consumption sector, Saigal highlighted growing consumer confidence and the ripple effects of government initiatives. “The reason was I was trying to poke on how they are thinking about the recovery in demand patterns. His answer was, this gentleman that I was meeting, that the government has done a lot to loosen purse strings and bring out capital into the markets so that consumers go out and spend. The first port of spend has been on high ticket items, things like automobiles and jewellery, etc, and that spending is going to now percolate to lower value items, the likes of apparel, consumer durables, etc. And even running into this quarter, of course the last quarter’s numbers are out and those have been for many companies quite robust but even running into this quarter since we are in February, the company witnessed continued tailwinds on growth.”
Saigal added that commentary from companies across sectors suggests this growth trajectory is likely to continue. “We also believe that the consumer is actually building on his confidence. The confidence was a little shaky last year because of a lot of reasons but going by what is happening with the macros as also these sort of tailwinds from government, it does look like the consumer sentiment is also coming back. So, in our judgment this is going to be a good year for consumers across the board whether it is durables or staples.”
When asked about Eicher Motors’ strong quarterly performance, Saigal emphasized the broader trend of premiumisation driving margins. “What is happening in segment after segment, sector after sector is that companies are gearing up for premiumisation and, of course, on a micro basis when there is greater revenues, operating leverage does come into play and so margins pick up which probably is what happened with Eicher. But in general, if you look at companies, they are holding up their gross margins even if the raw material prices are going up for the reason that they are premiumising and that premium category sales is actually helping them hold on to their gross margins. In cases where raw material prices are not going up, gross margins are expanding.”He further explained that as India’s per capita income rises over the next three to five years, the trend toward premium products will likely accelerate, benefiting companies across multiple sectors. “Whether companies decide to keep those margins or give it away to ensure that sales uptake continues, that is of course something that is left to individual companies but premiumisation as a trend is very much in and we will witness it sector after sector.”With a combination of strong corporate commentary, government support, and rising consumer confidence, market experts like Saigal are signaling optimism for India’s equity markets in the year ahead.
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