Most leading brokerages have been underwhelmed by the earnings performance of listed companies, with growth falling short of expectations and more earnings downgrades being penciled in than upgrades. But that hasn’t dampened their enthusiasm about the growth outlook for FY2019 and FY2020, even though the expectations may now be a little tempered.

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In a note on the earnings review, brokerage CLSA notes that earnings for Nifty companies grew just 1% year-on-year (yoy) against an expectation of 10% growth. Excluding banks and oil marketing companies, though, it saw the near 9.6% growth beat its estimates, buoyed by sectors like cement, media, consumer goods and healthcare. And while the brokerage has reined in expectations, it still sees 20% earnings growth in FY19 and 17% in FY20.

While there are real signs of demand pickup on the ground, the pace is not in line with expectations. However, no analyst wants to rely on just this trend to project earnings growth, especially in consumption-driven sectors. Here’s why, in 2014, the BJP officially spent under Rs 750 crore on the national elections, which was a record high by any party then. With the political equations shaping up the way they are, this time the aggression on spends is likely to be multiplied.

What’s more, the declared spend is not really anywhere near what actually gets spent. Reportedly, in an assembly election, candidates in the race end up spending up to Rs 2-4 crore each, while in the general elections, this amount can rise to Rs 10-15 crore. A simple math of seats going to polls this fiscal (including Karnataka) add up to over 400 assembly seats and 543 parliament seats. For these seats, at the above rates per candidate the spend this fiscal could easily be anywhere between Rs 40,000 crore and Rs 50,000 crore.

This is the big stimulus the street is betting on, over and above the largesse to be offered from the government’s coffers through sops and welfare initiatives in a pre-election year. And, since most of this is in cash, the spend won’t really get recorded anywhere. But it will translate into higher consumption, more utility vehicle and two-wheeler sales, higher liquor consumption, and so on.

In other words, FY2019 is likely to be the year of a consumption boom, as no holds barred spends are incurred to buy votes. And much of this consumption will happen in rural India, as of the 543 parliamentary constituencies, only about 10% are truly urban. Therein lies the rural growth story for FY2019, good monsoons or bad, farmer wage growth or not.

First Published:Jun 5, 2018 7:14 AM IST