Brokerage firm IIFL Securities believes that the commentary provided by listed companies following their March quarter earnings is “brave but misguided”.
In its analysis of the commentary provided by managements of listed companies, IIFL Securities found that firms have forecast strong near-term demand momentum, price hikes having minimal impact on demand, worst over for supply chain issues and strong near-term growth outlook despite macro-economic headwinds.
“Overall, we feel the commentary is a bit too optimistic,” IIFL Securities said in a note on June 21.
The brokerage, in fact, sees a triple whammy in the form of volume hit due to macro slowdown, cost inflation hitting margins, and stiffer interest rates impacting companies’ earnings and valuations.
Domestic equity market has come under pressure in 2022 after more than 24 percent gains in 2021 on rising concerns over high inflation, tightening of global liquidity conditions, and aggressive hikes in interest rates by global central banks.
Further, investors have also become concerned over possibilities of a sharp slowdown in the global economy led by the US and European Union at a time when inflation still remains high due to elevated global commodity prices.
The Nifty 50 index has fallen nearly 10 percent in 2022 so far but outperformed global markets because of lower downgrades to corporate earnings estimates.
“We think elevated prices of crude and food will keep inflation high in the foreseeable future. This will hurt discretionary consumption, directly and through forcing interest rates up,” IIFL Securities said.
IIFL Securities also believes that the much-awaited recovery in private capital expenditure is also likely to be delayed whereas a sharp rise in global interest rates will trigger more capital outflows from the country.“However, China re-opening, global supply-chain easing, a potential finished-goods supply-glut and softening of metals from the March peak could help fight inflation,” the brokerage firm added.
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