Respite to the ongoing selling pressure from foreign institutional investors (FIIs) for the Indian stock market may not be forthcoming anytime soon as the country’s valuations are steep, Aditya Suresh, head of research and strategy at Macquarie Securities India told CNBC-TV18.
“India is not a blanket buy anymore as there is a lot of earnings risk and valuations are steep,” Suresh said.
Suresh is concerned about the risk to corporate earnings given the steep expectations of investors from companies. Investors currently expect Nifty 50 earnings to grow 19 percent in 2022-23 and more than 30 percent in the current financial year.
While benchmark equity indices have corrected more than 10 percent from their record highs hit in October 2021, analysts have been shy of cutting earnings estimates for 2022-23 despite only in-line performance from companies in the December quarter.
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The major earnings risk for companies stem from surge in input prices across sectors. Indian companies have reported sharp declines in gross margins and even operating margins in the quarter ended December reflecting the impact of rise in global commodity prices.
After cooling off towards the fag end of 2021, global commodity prices have rebounded sharply because of the crisis in Eastern Europe with investors fearing impact on supply of critical commodities like crude oil, aluminium, wheat and others due to any sanctions imposed on the country for its military action in Ukraine.
Suresh said that there is risk of earnings down in sectors like consumer discretionary, consumer staples, automobiles, and industrials remained high. However, the equity strategist saw relative earnings strength in financials, information technology and some government capital expenditure-linked stocks.