Corporate earnings to rise by 25% in FY17: report

Corporate earnings are expected to grow by about 25 percent in 2016-17, on the likelihood of good monsoons, monetary easing, as well as recovery in commodity prices, says a report by Motilal Oswal Securities. According to the report, last fiscal's earnings decline was heavily influenced by headwinds from low commodity (metals and crude oil) prices, significant NPAs, two consecutive years of poor monsoon impacting consumer sector growth and lack of material transmission of rate cuts.

"For 2016-17, most of these headwinds are turning into tailwinds along with favourable base," the report said.  "We estimate 25 per cent PAT (profit after tax) growth in FY17 and 24 per cent CAGR (compound annual growth rate) over FY16-18," it added.

The report further said, that the likelihood of normal monsoon, government's focus on rural areas and the implementation of the 7th Pay Commission's recommendations would provide a strong impetus for consumption.

Besides, the recovery of metal prices from bottom driving metal sector earnings and transmission of RBI's 2016-17 rate cuts will benefit corporate earnings. Moreover, a large part of the banking and financial sector NPA being provided in previous fiscal would provide a favourable base for the current financial year.

The Auto, FMCG and financial sector would exhibit continuous strong earnings growth.

In the financial sector, Bank of Baroda, M&M Financial Services Ltd and Shriram Transport would see a sharp recovery this fiscal, on the back of significant NPA provisioning in 2015-16.

"Commodity companies like UltraTech (recovery in cement volumes driven by investment cycle recovery) and JSW Steel (recovery in steel prices coupled with strong volume growth) would also witness sharp profit growth," the report said.