Nifty as a pack has seen a 3 per cent drop in FY23 consensus earnings estimate in the last one month, weighed down by weak commodity sector earnings. While some recovery in earnings from December quarter onwards is likely, a lack of earnings surprises so far and expensive valuations leave little room for disappointment for domestic stocks, analysts warned.
Data showed FY23 consensus EPS estimate for Nifty stands at Rs 836.50. It has fallen 2.7 per cent in the last one month and 5 per cent in the last six months. FY24 EPS estimate, on the other hand, stands at Rs 989.50, largely stable on one- and six-month basis.
Kotak Institutional Equities said rich valuations and relatively strong performance of domestic stocks in the past few months suggest that market participants are very optimistic about India’s short- and medium-term outlook.
But the market might be overlooking several short- and medium-term challenges to growth and inflation both, it said.
“The short-term issues include weaker-than-expected growth and higher-than-assumed interest rates, which could limit earnings surprises. The medium-term issues comprise weak macroeconomic conditions and incomplete reforms in the medium term, which may pose challenges to India’s medium-term growth prospects. India’s high current account and fiscal deficits matter less at low global and domestic interest rates. They will matter more now given the high cost of financing such large deficits,” Kotak said.
Morgan Stanley said it stays ‘underweight’ on India equities from tactical and valuation perspectives, and expects the domestic market to lag any initial recovery in the broader emerging market region.
Among Nifty companies, Adani Ports, ONGC, Dr Reddy’s Laboratories, Sun Pharma and SBI were ahead of PAT estimates, Elara Securities said adding that the biggest misses came from Tata Steel, Asian Paints, Larsen & Toubro, Power Grid and Tata Consumer.
Companies such as Mahindra & Mahindra, SBI Life, ICICI Bank, Sun Pharma and HCL Technologies saw the highest FY23 PAT upgrade, with Tata Motors, JSW Steel, Tata Steel, Adani Ports, and Divi’s Laboratories posting the sharpest FY23 PAT downgrade, it said.
Kotak said moderate growth in FY2023 so far reflects sharp decline in profits of the commodity sectors and large loss in the case of BPCL, which will partly offset strong growth in profits of the automobiles and banking sectors. India’s expensive valuations leave very little room for disappointment, it warned.
“While peak range valuations in a tightening monetary policy environment may prevent any rerating of multiples, continued strength in earnings will provide downside protection, keeping markets range-bound in the near term. Key risk to our call will be a sharp slowdown in urban demand,” Elara said.
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