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Index Outlook

Remain constructive on corporate earnings cycle…

Global as well as Indian equity markets have been quite volatile in the recent past, primarily tracking inflation led interest rate hike outlook by global central banks, geopolitical tensions and rise in crude prices. Corporate earnings, a true barometer of the health of the market, on the other hand, have been quite resilient with growth momentum continuing unabated. At Nifty index level, on QoQ basis, sales, PAT growth for Q3FY22 is pegged at 11%, 9% respectively. On YoY basis, growth is even more stupendous at 25%+ each tracking commodity price led benefits in metals and oil & gas space. The management commentary is optimistic and hopeful of a strong rebound, going forward. Other macroeconomic indicators viz. GST collection, e-way bill generation, advance tax collection, etc, also point to better-than-expected economic rebound. With growth capex on the anvil by the public and private sector, we expect a broad based economic recovery, going forward. The shot in the arm is the capital expenditure outlay in Union Budget 2022-23 (| 7.5 lakh crore, up 35% YoY) that is expected to have multiplier effect across the domestic economy. We believe that the present market volatility offers an opportunity to build long term portfolio of quality companies, which have lean b/s, are capital efficient & have growth longevity.

Incorporating revised PAT estimates across index constituents, our FY22E Nifty EPS gets an upgrade of ~5% at | 720/share vs. earlier estimate of | 685/share. FY23E estimates, however, remain unchanged at | 815/share. Incorporating FY24E numbers, we expect Nifty earnings to grow at 20%+ CAGR over FY21-24E. Keeping our index targets intact we now value the Nifty at 20,000 i.e. 23x PE on FY23-24E average EPS of | 870/share. We are cognizant of the fact that traditional PE matrix holds less significance amid the changing composition of the Nifty in favour of new economy stocks.

Sectoral Earnings

Going forward, healthy double digit growth is expected across sectors led by auto space (albeit on low base), capital goods (capex linked) & BFSI domain.

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