The brokerage house says that the effect of inflation may affect the earnings of companies in the next 2 quarters. Apart from this, expensive valuation will also be a concern.
Best Stocks to Invest in FY23: Despite all the challenges, FY 2022 has been better for the stock market. Talking about the whole year, this year has been second in the last 7 years in terms of giving returns. The Nifty has gained 19 per cent last year. While the Sensex has also given a return of about 19 percent. The flow in equity of DII stood at $26.8 billion, which is the highest. While FIIs pulled out $17.1 billion from the market. The Nifty Midcap grew 25 percent on a yearly basis and the Smallcap index grew 29 percent. For the time being, now we have entered the new financial year at such a time, inflation is a big concern. The brokerage house says that the effect of inflation may affect the earnings of companies in the next 2 quarters. Apart from this, expensive valuation will also be a concern.
Companies’ earnings will decrease due to inflation
According to the report of brokerage house Motilal Oswal, we have entered FY23. We believe that the next two quarters will see huge margin impact. Corporate commentary may also remain weak before it gets better. While the Nifty hasn’t seen much earnings fall so far, the broader market is bearing the brunt of high commodity prices and inflation. Its trend has also been seen in the 3QFY22 corporate earnings season. If the input cost situation does not improve and prices continue to rise, there could be a negative impact on demand. This will not be good for the economy already facing pressure. Due to this, there may be a decline in the earnings of Nifty companies.
Market valuations expensive
According to the report, two-thirds of the sectors are still trading at a premium to their historical average. The market capitalization to GDP ratio of India is volatile. It reached 56 per cent of FY20 GDP in March 2020 from 80 per cent in FY19 to Telna. After that it is co-rebound at 115 per cent of FY22E GDP. This long term average is above 79%. Healthcare, Oil & Gas are in the reasonable range of their LPA valuations. While Technology is trading at a premium of 52 per cent of its LPA. Financials are trading close to their LPA on P/B basis.
FY22: How much return in which sector
Utilities (+63%), Metals (+62%), Media (+54%), Oil & Gas (+42%), Telecom (+42%), Technology (+40%). While private banks, consumer, auto and healthcare underperformed.
Top Gainers: Bajaj Finserv (+76%), Hindalco (+74%), Titan (+63%), Tata Steel (+61%), ONGC (+60%)
Top Losers: HDFC Life Insurance (-23%), Hero Motocorp (-21%), Shree Cement (-19%), BPCL (-16%), HUL (-16%)
Top Largecap Ideas
HDFC, ICICI Bank, SBI, Infosys, HCL Tech, L&T, Titan, Godrej Consumer, Apollo Hospitals, Ultratech
Top Midcap/Smallcap ideas
Jubilant Foodworks, SAIL, Ashok Leyland, Dalmia Bharat, Whirlpool India, Canara Bank, GR Infraprojects, Zensar Tech, Angel One, Zee Entertainment
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)