Ayush Abhijeet: India’s “Earnings revival gathering momentum”

By Ayush Abhijeet, Adviser of the Ashoka India Equity Investment Trust PLC

India is entering the best phase of earnings growth in more than a decade

In FY21, when India’s GDP declined by 7.5%, the worst in many decades, Nifty earnings grew by 14%, a rare feat in emerging markets. The expectations for earnings growth for the Nifty companies are 32% YoY growth for FY22 and 16% for FY23. If achieved, it would mark the best phase of earnings growth in more than a decade. The ongoing reporting season is also proceeding along expected lines with most companies reporting a steady uptick in demand.  This robust earnings performance in the face of economic challenges, reflects revival in corporate profitability due to consolidation in market share in favour of organized players.

Megatrends playing out in the economy supporting many of our portfolio companies 

Market share consolidation in favour of stronger, larger players has been a steady phenomenon during Covid. After the initial lockdowns in 2020, there was an accelerated shift in market share from the unorganized to the organized sector, due to the inability of the unorganized segment to deal with the significant supply chain disruptions. Companies continued to focus on enhancing the distribution reach particularly in rural areas, and through e-commerce investments. This trend has played out in multiple sectors including staples, durables, home improvement products, and real estate.

‘China +1’ strategy also a tailwind

Major supply chain disruptions and regulatory tightening have further accelerated the ongoing ‘China + 1’ strategy for global companies looking to diversify their manufacturing base, with India emerging as one of the most credible alternatives. We continue to see opportunities for companies in sectors such as electronics, specialty chemicals, among others.

Within electronics, global players like Apple and Samsung are scaling up their India operations and we expect smartphone manufacturing in India to be further aligned with global supply chains in the year ahead.

Further, having proven its worth in the pharmaceutical industry as the ‘Generic capital of the world’, Indian chemical manufacturers are well poised to emerge as credible alternate and, in some cases, primary suppliers to companies globally.

Emerging leadership in IT Services

Over the last decade India has emerged as one of the fastest growing economies in the world. One of the drivers of this economic success is its global leadership in IT services. India has a strong ecosystem with a large attractive talent pool of STEM graduates and Indian IT companies have consistently gained market share across all time periods. Owing to the pandemic, adoption of digital technologies has accelerated across geographies. Indian IT companies are set to be a key beneficiary of this trend.

A stable external sector

As highlighted in the recently released Economic Survey, a combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings provides an adequate buffer against possible global liquidity tapering in 2022-23.

FY23 Budget – A message of continuity

The FY23 budget should be seen as a continuation of the FY22 budget, which was universally hailed as a pro-growth and pro-reforms budget. While the budget signals policy continuity with thrust on capex, announcements towards enhancing the ease of doing business and boosting exports and manufacturing, there is an added emphasis on new areas such as sustaining digital ecosystems and urbanisation. The budget looks to steer the economy towards a path of potentially higher growth by focusing on the supply side.


The trust today trades at a premium of 2.2%. The fund was up 48.2% in 2021, outperforming the benchmark by +1700bps. The structural drivers of the India economy, underpinned by domestic consumption, attractive demographics and an aspirational middle class, remain deep rooted and continue to present a multi-decade opportunity.

We see Indian markets as being very dynamic, inefficient, and well-diversified, and so continue to offer opportunities to generate alpha. Those investors with a long-term horizon stand to be well rewarded.

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