Historically, equity markets have shrugged off the impact of wars in a few weeks or months. Will the Russia Ukraine conflict create a more lasting impact?
How much of a pain point will the surge in crude oil prices be for India?
What is your view on mid-cap and small-cap stocks?
Relative price-value equation is more favourable for large-cap stocks in our view. Valuation gap between large-cap and mid and small-cap indices need to become more favourable for us to turn more constructive. Also, large-caps are better placed to withstand the impact of higher input cost inflation, rising rates and withdrawal of excess global liquidity. That said, mid-cap and small-cap investing is always a bottom-up game and one can always find good ideas in every market scenario.
What are your estimates for FY23 corporate earnings growth? And, will capex pick up this year?
We are expecting 20 per cent growth in Nifty earnings per share (EPS) for FY23, from Rs 738 in FY22 to Rs 880 in FY23, driven by banking, financial services and insurance (BFSI) (consistent loan growth and asset quality performance), information technology (IT) (strong demand visibility), commodities (higher prices) and auto (low base). Necessary conditions for capex revival are in place: corporate balance sheets are light and banks have cleaned up their balance sheets. However, we expect capex to pick-up gradually, given the underlying capacity utilisation across sectors which is still in early 70s. Also, sectors with appetite for large capex such as metals, cement, and O&G are still in a de-leveraging mode. So capex revival will still largely be driven by government and private capex will join the party selectively and gradually as the demand improves.
Which sectors are you betting on right now?
We like IT, BFSI, consumer discretionary, telecom and metals. We have a big overweight stance on IT since 2020 and are continuing with it given the strong demand visibility, robust deal pipeline and excellent cash flow (OCF, FCF conversion) and pay-out metrics. We are underweight on auto, infra and energy.
What is your view on banking and financial stocks?
We are positive on BFSI and have 300 basis points overweight on the sector in our model portfolio. BFSI has delivered consistent earnings growth despite the recent challenges pertaining to Covid-19, lockdowns and issues in medium and small enterprises (MSME). In fact, the profits of BFSI companies in Nifty has grown from Rs 440 billion in FY18 to an estimated Rs 1.5 trillion in FY22. We expect another year of robust 25 per cent growth in FY23 which could take it to Rs 1.9 trillion.
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