Markets have witnessed a strong rally in the last eight months, which has so far been
aided by the deeply beaten down valuations. Going ahead, we believe that acceleration
in earnings growth will drive the markets forward. We expect the performance of
various domestic cyclical sectors to continue improving going forward on the back of
the improving economy and policy environment. In our view, top-line and earnings
are at subdued levels across most cyclical sectors and are likely to show material
improvement going forward, which is not yet fully reflected in consensus. Further, we
expect earnings growth to be better than sales growth in the coming years on the
back of improvement in operating margins, capacity utilisation and financial leverage
(which would reflect in lower depreciation and interest costs).
