We do not expect any significant near-term upside in stock market, says Motilal Oswal top official

K. S. Badri Narayanan | Updated on: Aug 06, 2022
Gautam Duggad, Head of Research, Motilal Oswal Institutional Equities

Gautam Duggad, Head of Research, Motilal Oswal Institutional Equities

Q1 FY23 results season is tracking below expectations primarily owing to big miss in RIL, said Gautam Duggad

Gautam Duggad, Head of Research at Motilal Oswal Institutional Equities, with over 12 years of experience shares his views on current topics that impact markets.

Do you think the worst is over for Indian stocks, after the recent recovery?

It is always difficult to predict short-term moves of markets, more so in such a volatile market context. However, some of the headwinds that the market was facing viz. higher inflation and relentless FII selling, seems to have abated. Commodity prices are off a good 15-30 per cent from recent peak and intensity of FII selling has reduced in July 2022. That said, I don’t believe we are completely out of the woods yet. Inflation is still high, supply chains are still not completely normal and the US rates are expected to move higher. Secondly, our currency has come down quite a bit, though it has stood resilient vs other emerging markets. Lastly, the recent recovery puts valuations back in fair value zone with Nifty now trading at 19x FY23 EPS. Thus, we do not expect any significant near-term upside.

Foreign portfolio investors have been net sellers in the last few months but slowed their selling in July. Can we now say FPIs selling is over?

These are very difficult things to predict and one can always opine on this with the advantage of hindsight. However, data is clearly pointing towards reduced intensity of FII selling in the last three weeks. That said, global macros are still challenging and volatility is elevated. Relatively, India is standing out because of superior corporate earnings growth (Nifty earnings are up 60 per cent over FY20-22 and expected to grow another 15 per cent in FY23). FII flows will be a function of global rate movements, dollar index, geopolitical events and, most importantly, India’s corporate earnings momentum. That is the most important metric to track, as we have seen markets have broadly tracked corporate earnings growth trajectory. Over FY10-FY20, Nifty earnings grew 6.5 per cent CAGR and Nifty gave 8.6 per cent CAGR returns.

How do you read the current result season? What are the key challenges to various sectors?

Q1-FY23 results season is tracking below expectations, primarily owing to big miss in RIL. Ex-RIL, numbers are in line for Nifty as well as MOSL Universe so far. We expect Metals to drag overall aggregates, while Autos and BFSI to drive earnings. BFSI has been the most consistent performer on earnings – with BFSI profits in Nifty up from ₹45,000 crore in FY18 to ₹1.5-lakh crore in FY22 ,and expected to deliver ₹1.9-lakh crore in FY23.

In other sectors, we expect the impact of margins to drag profits – Cement, Healthcare, IT, Auto and Consumer should do well on low base of earnings.

Domestic funds have been attracting retail investors for quite sometime... Your view on this?

This has been the most pleasant part of India’s equity story of late. Domestic retail investors have reposed their faith in equities despite the challenges and gyrations on multiple fronts. The SIP book has now become very meaningful at ₹12,000 crore per month. We do believe that equities still offer a very attractive proposition for investors with long-term view and thus expect the participation of retail investors to remain intact not withstanding hiccups as and when fixed deposit rates go up meaningfully from here.

The IPO market is lull currently as some of the stocks suffer post listing. Do you see revival in the IPO market?

It will be a function of broader market sentiment, as always. Success of individual IPO is always a function of market sentiments, liquidity and individual bottom-up value proposition. We do see revival in the IPO markets as and when equity markets and global macros (rates, currency, commodities) stabilise.

Published on August 02, 2022
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