Despite increasing near-term demand disruption and medium-term risks, most ‘growth’ stocks in the consumption, investment and outsourcing space are trading at expensive valuations.
However, financials remain reasonably valued and appear attractive in the context of a likely healthy credit cycle over the next 1-2 years, said Kotak Securities.
The market is trading at reasonable valuations compared with recent history and bond yields after lackluster returns over the past 18-20 months, it added.
Earnings subdued
Domestic micro remains subdued, with March quarter earnings slightly ahead of muted expectations.
The slightly better performance was due to lower-than-expected tax rate in the case of Reliance Industries.
In fact, both consumer and IT companies reported weak results. Consumption categories continued to remain subdued in the March quarter though lending remained robust.
Outsourcing companies were impacted by a weak global demand environment and are expected to report moderate earnings growth in FY’25 with low scope for earnings upgrades across sectors, said the report.
“We would not rule out earnings downgrades in the consumer discretionary space, as the underlying factors for the current spell of weak demand may sustain for another 2-3 quarters,” it said.