The significant fall in share prices over the past one-and-a-half-months when most sectors declined in double digits offers investors an opportunity to buy stocks of quality companies.
Margin pressures reflected in corporate earnings for the December quarter due to rising commodity prices, expectations of faster policy tightening by the US Federal Reserve, relentless selling by foreign investors, and the geopolitical tensions with Russia’s invasion of Ukraine weighed on market sentiment.
The benchmark BSE Sensex fell 11 percent during January 17-February 24 before a minor recovery, while the BSE Midcap index dropped 15 percent and the Smallcap index plunged 18.5 percent.
Among sectors, auto, capital goods, energy, healthcare, IT, consumer durables, oil & gas, and realty declined 10-20 percent, while banking, FMCG and power fell 7-9 percent.
Volatility hit the highest level since May 2020, with the India VIX going up to about 30, indicating instability in the market unless the geopolitical risk eases.
The Russia-Ukraine crisis, which continues for the time being despite sanctions imposed by western countries, poses a threat to earnings and economic growth, given the rise in commodity prices, experts said.
Brent crude oil futures, the international benchmark, hit $120 a barrel on March 3, the highest level since 2012 and a rise of 69 percent in more than two months.
Inflation, growth risks
“This would be a negative factor for global trade, posing a downside risk to the global economic growth,” Axis Securities said. “A scenario of oil sustaining above $100 a barrel for some more time will create notable challenges to the oil-importing countries, especially India, which may find it difficult to maintain the trade deficit and the foreign exchange reserves.”
The brokerage said the rise in crude oil prices could delay the cool-off in inflation in the domestic market, which was expected to moderate in the second half of 2022.
However, in the backdrop of the Russia-Ukraine crisis, commodities would be the biggest gainers and as long as the geopolitical heat continues, it will be the dominating theme in the market, Axis Securities said.
Apart from the current geopolitical issue, upcoming events in March include the Federal Reserve meeting and assembly elections results from five states.
“The direction of the oil prices, bond yields, and dollar index along with the development of the current geopolitical events will further drive the market fundamentals,” the brokerage said, adding that once the dust over the Russia- Ukraine conflict settles, the market is expected to refocus on key events such as inflation and the number of rate hikes in the current calendar year.
Despite the current volatility, the brokerage maintained its Nifty target of 20,200 with a positive long-term view on the market supported by the emerging favourable structure as increasing capital expenditure enables banks to improve credit growth.
The Nifty closed at about 16,500 on March 3. To achieve the target of 20,200, it needs to add 3,700 points, or 22.4 percent, by March 2023. The index touched a record high of 18,604 in October 2021.
The brokerage said the overall boost in the Union Budget 2022-23 expenditure will help deliver broad-based growth in FY23.
Though the earnings momentum has been strong in the past few quarters and largely in line with expectations for the current quarter, they remain the critical factor for the market, said Axis Securities, which foresees FY22, FY23 and FY24 Nifty EPS at Rs 728, Rs 844 and Rs 918, respectively, with a 20 percent CAGR growth over FY21-24.
Based on these themes, the brokerage has recommended the following 16 stocks with a 10-50 percent potential upside.
Krishna Institute of Medical Sciences
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