Markets are set for a massive earnings recovery in the next four-five years, said Susmit Patodia, Associate Director and Fund Manager-PMS of Motilal Oswal AMC on Thursday.

“The Nifty is up 15 percent for the year which is our long-term average annual return from the Nifty. I am not sure if COVID is eradicated next year, then maybe this is not one of those extreme bubble movements. I think with the next four-five years, we are set up for a massive earnings recovery and if that plays out, then this 15 percent return is very possible going forward,” Patodia told CNBC-TV18.

On liquidity, he said, “For me, liquidity is more important from a global perspective which is if COVID gets eradicated next year and all the trillions of dollars that were put into the economy as the stimulus or for fill up the economic loss, what happens to that. If that starts getting pulled back, then it gets interesting because most of the liquidity has found its way to assets— equity, gold, or even bitcoin for that matter. So, liquidity if it is removed on the back of revival of the economy, then earnings take over and markets don’t get knocked up. But if liquidity is removed and the economy does not revive, then we have a problem.”

Credit cost needs to be lower for a healthy earnings recovery, he said.

“Market is a function of earnings, valuation, and short term liquidity. For the last five years, we have had no earnings growth at a Nifty level. One of the major reasons has been the drag from credit cost. We believe that if credit cost is bottoming out, then the next four years, earnings could double for Nifty,” he said.

He further added that if earnings double and interest rates remain at six-seven percent, then a 12-13 percent CAGR is possible for the Nifty in the next four years.

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(Edited by : Ajay Vaishnav)