Motilal Oswal Sees 20% Earnings Growth for Nifty

Brokerage Motilal Oswal Securities Ltd said expects Nifty earnings to grow by over 20% in in the current financial year, suggesting the possibility of a similar appreciation in their stocks. It based in optimism on healthy corporate earnings in the first quarter and upbeat management commentary.

MOSL pointed out that corporate earnings for the June quarter came in strong and could reinforce the overall optimistic outlook for India.

Indeed, the Nifty posted robust growth of 32% in net profit and 22% in EBITDA compared to MOSL’s expectation of 25% and 18% respectively. Nifty’s net profit has been growing 22% every year on average over the last three years.

Earnings of companies that are within Motilal Oswal’s coverage rose 52% year-on-year in Q1FY24, in line with estimates.

The earnings growth was led by domestic cyclicals such as banks, financial services and auto companies, the broker pointed out.

MOSL believes the profit pool of its coverage universe will surpass Rs 10 trillion in FY2024, reflecting growth of 33% over last year. After a healthy , the Nifty opened FY2024 on an upbeat note with 32% profit growth in Q1.

Emerging Markets

Motilal Oswal pointed out that barring Russia and Indonesia, major global markets like MSCI Emerging Markets, China, Brazil, UK, Taiwan, Korea, India, US and Japan declined in August 2023 in local currency terms.

In contrast, over the past 12 months, MSCI India — which is an index of Indian stocks maintained by US-based MSCI — has outperformed MSCI Emerging Markets index by 5%. In the last 10 years, MSCI India has delivered 195% higher returns compared to the benchmark EM index.

As a result, India’s contribution to global market capitalization stood at 3.4% in August 2023, above the historical average of 2.6%. The country is among the top 10 contributors to world market cap.

Back home, mid and small cap stocks continued to outperform large caps.

In August, Nifty Midcap 100 and Nifty Smallcap 100 rallied by 6% each compared to a 2.5% decline in Nifty 50. So far in calendar year 2023, midcaps and smallcaps have gained 24% and 26% respectively versus 6% rise in the Nifty.

Sectoral Trends

More than half of the sectors are trading at a premium to their historical valuations. Technology, Specialty Chemicals, Real Estate, Retail, Healthcare, Logistics and Consumer sectors are trading above their 10-year average P/E multiples, the report pointed out.

“The outlook for IT spending remains weak with no clear signs of recovery yet in discretionary spends,” it noted. However, Motilal Oswal believes early recovery in global economies could provide an upward bias to IT budgets.

Cement demand has shown improvement despite monsoons, aided by sustained infrastructure activity and real estate growth, it said. Prices were stable in August, though some price hikes have been announced in September.

The consumer sector continues to reel under weak demand conditions. Rural demand is likely to be further impacted by deficient monsoons this year. However, valuations have contracted and presently trade at only 5% premium to historical averages.

On the other hand, PSU Banks, Oil & Gas, Metals, Automobiles and Media sectors are trading at discounts to their historical valuation multiples. While demand environment for autos remains resilient, muted festive season sales could act as an overhang in the near term.

Stock Ideas

Some of Motilal Oswal’s top largecap ideas include ICICI Bank, ITC, Bajaj Finance, L&T, HCL Technologies, Titan, Sun Pharma, Avenue Supermarts, M&M and Zomato.

The recommended midcap and smallcap stocks are Indian Hotels, Ashok Leyland, Godrej Properties, APL Apollo Tubes, MMFS, Metro Brands, Kajaria Ceramics, CreditAccess Grameen, Angel One and Lemon Tree Hotels.