Earnings forecasts are being upgraded globally and the trend is visible in India too. However, analysis of consensus aggregates suggests that revisions are mostly for 2010 while 2009 index EPS is at the same level as it has been since February 2009.
While projected 2009 EPS is still 7% below the EPS two years back in 2007, the forecast for the rebound in 2010 is only for 20% EPS growth. In other words, projected 2010 ROE is well short of 19% versus over 21% achieved in peak economic years like 2007.
While any multiple expansions from the current level is unlikely to be sustained, 2010 EPS growth means that even without any surprises, forward EPS is rising by almost 2% every month.
Forward earnings are sharply positive, mostly due to changing time weights that include more of FY11 EPS with every passing month. [Shangri La]
In our view, Valuations look stretched on earnings – positive revisions and move of the forward EPS on account of growth to be more of the market driver ahead than multiple re-rating.