New Delhi: The gap between market capitalisation and corporate profits for Indian equities is likely to narrow over the next 18-24 months as earnings improve, a senior asset manager said on Monday.
“Over the course of the last three quarters, earnings have started to come in at a much higher rate. And therefore, the gap has kind of reduced between market cap and profit,” said Harish Krishnan, CIO - Equity at Aditya Birla Sun Life AMC, told PTI in an interview.
According to the AMC, the profit pool of the top 1,000 listed companies has grown 18 per cent over the last 21 months, while their market capitalisation has remained broadly flat.
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Krishnan said the overall markets are doing much better than they were 18-24 months ago and earnings are expected to improve further.
“We do think that there is a greater prospect of being posted on three-quarters over the course of the next 18-24 months," he said.
A weaker rupee and trade agreements with several economic blocs could support exports and corporate earnings, he said.
“Along with that, as you are aware, we have now made trade deals with many economic blocs and therefore, the weaker currency is going to also represent exports," Krishnan said.
“The number of companies doing capex is also slowly but surely moving up. So, therefore, I am quite confident about these earnings improving valuations,” he said.
India accounts for around 3 per cent of global market capitalisation share, Krishnan said. He expects India's share of the global economy to rise to 6-8 per cent or even higher over the next 18 months, creating scope for further convergence between India’s economic weight and its share of global market capitalisation.
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“It's a compelling opportunity for various international allocators to look at India in a very constructive way,” he said.
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