Market Strategy For Diwali 2014 By Angel Broking

Earnings growth to drive market forward

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).

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