Commodity prices to hit margins and demand, says Edelweiss Securities Aditya Narain

Market Outlook

Investors have remained confident that the overall earnings of Nifty 50 companies will continue to grow in double-digits in 2022-23.

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Aditya Narain, research head at Edelweiss Securities, is of the view that investors need to be cautious about earnings growth expectations for 2022-23.

“At this point of time, you have to be a little cautious about how earnings will be this year,” Narain told CNBC-TV18 in an interview.

Narain cautioned against the impact of higher commodity prices not only on the margins of companies that consume them but also the impact higher product prices will have on demand. “Bigger story is what happens with demand and that’s an area where we are concerned,” he said.

Investors have remained confident that the overall earnings of Nifty 50 companies will continue to grow in double digits in 2022-23 and 2023-24, given the hope of a revival in domestic investment demand and strong exports.

The market has managed to climb the wall of worry around inflation as well as concerns over a possible recession in the US and the ongoing slowdown in China so far.

As per the Moneycontrol Market Sentiment Survey for March, fund managers expected earnings of Nifty 50 companies to grow by 10-15 percent in 2022-23.

The impact of higher commodity prices on domestic price inflation has also forced the Reserve Bank of India’s Monetary Policy Committee to put inflation above growth in its “sequence of priorities” and signal a reversal of the extraordinarily accommodative policies of the pandemic era.

That said, Narain remained confident in the potential of the information technology sector in the backdrop of March quarter earnings by Tata Consultancy Services.

While Narain acknowledged that in the near-term, margins of IT companies will remain under pressure owing to staff attrition, he expects the sector to remain the place to be in for investors in the medium term.

At 10:55am, the Nifty IT index was down 0.9 percent at 34,568.2 on the National Stock Exchange.

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