One should focus on fundamentals from earnings point of view as well as from a macro point of view, Gautam Duggad, Head of Research, Institutional Equities at Motilal Oswal Securities.
Gautam Duggad, Head of Research, Institutional Equities at Motilal Oswal Securities says volatility and risks have made a comeback and so it is important to price the risk appropriately and more so, because the downside for the market is serious now.He said, one should be cautious in this market, especially with regards to midcaps, which are trading at 50-60 percent premium to largecaps.
Therefore, where there are misses in earnings, deterioration in fundamentals, those become risky stories, he said.
On the other hand, we are also witnessing global volatility, newsflow etc, he added. However, he does not think margin calls have been triggered as of now.
His FY19 EPS estimate on Nifty is at Rs 595, which assumes a 26 percent growth to FY18 EPS estimates. Talking about the risks to their FY19 EPS estimates, he said there is stark divergence between Indian macro and micros. In the past three years, there was no earnings growth but now it is coming back and earnings growth for the Nifty for the quarter was 17 percent ex-SBI, he said.
The uncertainty for FY19 EPS is mainly the PSU banks, he said. However, on the other hand spaces like autos, consumption and private banks have seen earnings recovery.
Moreover, the micros have been steadily improving, while macros have bottomed out. Therefore, one should focus on fundamentals from earnings point of view as well as from a macro point of view, he said.
Sharing the rationale for the house not being upbeat on IT and metals, he said given the rally already seen in metals for last 2 years and five quarters of triple digit earnings growth they have turned cautious on the space.With regards to IT, he said they have liked Infosys, Tech Mahindra, L&T Infotech but the stocks have already rallied a lot and are now not trading at a discount. For them, growth has not really recovered but the rupee part of the equation and global growth sentiment has improved.