Resurgence of the second Covid wave has muddied sentiments and impaired FY22 earnings visibility, said Motilal Oswal. “While the market is currently looking beyond the short-term impact, if the pandemic doesn’t subside soon, it opens up downside risks,” the domestic brokerage firm said in its Bulls & Bears report.

According to Motilal Oswal, the Nifty now trades at a 12-month forward P/E of 20.1x, about 7 per cent above its historical average of 18.8x. At 2.9x, the Nifty P/B is well above its historical average of 2.6x.

Rise in earnings downgrades

The market capitalisation-to-GDP ratio is at a new year-end high of 106 per cent (expect FY21 nominal GDP to decline by 4 per cent YoY), it said.

"Q4FY21 earnings are progressing largely in line with our expectations, but earnings downgrades are now rising, given the widespread restrictions in various States, which is hurting mobility and economic recovery," it said adding that the interplay of resurgence in Covid-19 cases and the pace of vaccination would decide the trajectory of economic recovery going forward.

‘Premium stocks’

According to the Motilal Oswal study, about 50 per cent Nifty constitutents trade at a premium to their historical averages. Companies trading at a significant premium to their historical averages included HCL Tech (69 per cent), Divi’s Labs. (66 per cent), Wipro (64 per cent), TCS (49 per cent) and Titan (49 per cent.). However, companies such as Coal India (-58 per cent), ONGC (-50 per cent), NTPC (-49 per cent) and ITC (-40 per cent) are trading at significant discount to their historical averages.

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