Gaurav Dua is the Senior VP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas
We expect Q4 earnings season to be quite tough for certain sectors as after an earning upgrade cycle of past 4-5 quarters, the Q4 earning season could see meaningful downgrades in estimates in select sectors like cement, FMCG, oil marketing companies, consumer durable companies, said Gaurav Dua, Head – Capital Market Strategy at Sharekhan by BNP Paribas.
Talking about which stocks to focus on going ahead, he said we expect market behaviour to be skewed in favour of high quality stocks from select sectors.
Do you think the market investors will have to worry more about the US Fed action than about the Ukraine-Russia war?
The US Federal Reserve is expected to hike rates by 25 bps for 5/6 times this year and it is already factored in by the markets. In fact, the recent Bloomberg data indicates that the majority expect (probability of 75 percent) an aggressive 50 bps in May. So, all eyes are on the news related to inflation, especially crude oil prices globally, which is expected to influence the market sentiments in the near term.
Indian equities seem to be resilient right now despite current global concerns. Do you think the market sensed that oil is going to fall below $ 100 a barrel once the Ukraine crisis ends?
Despite massive selling by foreign institutions, Indian equity market has stayed resilient due to support from strong retail inflows lately. The SIP inflows in mutual fund alone added close to Rs 11,000 crore.
The softening of crude oil prices is also good news for Indian equity due to India’s high dependence on imports for its energy needs. Thus, the easing of selling pressure from foreign investors would help market further regain some of the lost ground.
Is it possible for the market to clock 15-20 percent returns in FY23?
It is possible to get mid-double digit kind of returns in FY23. However, we expect market behaviour to be skewed in favour of high quality stocks from select sectors/companies that are relatively better placed to manage the input cost pressure in the current inflationary macro conditions.
Corporates are going to see major margin pressure due to sharp rise in commodity prices. According to you, will the situation be very bad if we consider the next 2-3 quarters down the line in terms of corporate earnings across industries?
In fact, we expect Q4 earnings season to be quite tough for certain sectors. After an earning upgrade cycle of past 4 or 5 quarters, the Q4 earning season could see meaningful downgrade in estimates in select sectors like cement, FMCG, oil marketing companies, consumer durable companies.
On the other hand, we see limited impact of high input cost on IT services, private banks, real estate and select commodity companies.
As the market remained resilient, do you expect several public issues getting launched in coming weeks? Is it better for companies to launch IPOs before LIC IPO?
There is always appetite for public offerings of companies with strong fundamentals and reasonable pricing of the issue.
What are the sectors that could get more attention now as we entering into FY23?
Two keys trends for FY2023 would be:
1) Underperformance of broader markets compared to high quality largecap & midcap companies. As companies with pricing power and healthy balance sheet are better placed to tide over the inflationary macro conditions.
2) Some of the sectors like IT services, real estate, private banks are less impacted by inflationary pressure and could outperform in FY2023
Accordingly, investors need to readjust their portfolios.
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