Mr. Mitul Shah - Head of Research at Reliance securities.
U.S. equities ended the week in green, after a prolonged bout of volatility and heavy selling across markets. The S&P 500 rose 1.9% for the week, while the Dow Jones added 0.8%. The Nasdaq jumped 4.6%, and on Friday, rose for the fifth consecutive session, notching its longest winning streak of the year. 10-year Treasury note rose to 3.098%, marking its biggest one-week yield gain in around a month. Jobs report showed that rising interest rates and high inflation have not impacted the job markets as the U.S. economy added 372,000 jobs in June, which is well above the expected consensus figure of 250,000.
On Domestic Front: The domestic equities ended higher for the week as the Nifty climbed 2.97%. Broader markets outperformed the main indices as Nifty Mid Cap and Nifty Small Cap increased by 4.24% and 2.98% respectively. All sectoral indices ended in green for the week. Nifty PSU Bank gained the most at 6.6% followed by Nifty Consumer Durables and Nifty Consumption which were up 5.96% and 5.36% respectively. The markets fear whether the newly introduced taxes on steel, iron ore, petro-products and crude oil, could lead to a compression in margins for India during FY23. With regards to the depreciating rupee, the RBI is attempting to diversify sources of forex funding, mitigate volatility in the forex market and contain global spill-overs in order to curb the fall of the rupee and boost foreign inflows. While markets are finding their rhythm back, with the Nifty notching up gains, whether the upward trend is sustainable amid all the global headwinds, is something that remains to be seen.
The depreciating rupee, widening trade deficit, selling pressure from FIIs and volatility in global crude prices will assess the markets' trajectory in the near-term. The progress of monsoon has accelerated and will mitigate macroeconomic hurdles of grain production and food inflation. Additionally, fear of a global recession has been creeping up which has led to a gradual fall of oil prices and softening of commodity prices which were on record high levels, post the start of the Russia-Ukraine war. Meanwhile, investors await on the corporate earnings results of 1QFY23 for further cues. Due to higher commodity inflation, subdued 1QFY23 and rate hike led higher cost of capital, we expect 10% and 7% cut in Nifty EPS for FY23E and FY24E respectively. Consensus Nifty EPS is 882 and 1020 for FY23E and FY24E at present. Post earnings cut revised EPS would be 800 and 950 for FY23E and FY24E respectively. At CMP Nifty is trading at 20.2x FY23E and 17.2x FY24E, well below its long-term average. We expect strong economic rebound, normalised commodity prices, inflation within targeted range and better visibility in 2HFY23, which would transform Nifty valuation to close to historical average. Our FY23 target for Nifty is 19,000 at 20x FY24E revised EPS. We expect FII inflows to return by end of 1HFY23, while the DII investments would continue in FY23. Equities would continue its outperformance with double-digit returns. Sectors like Automobile, Capital goods, Consumer would be in focus in FY23.