Nifty can still test 22,000 given muted earnings outlook: Manish Sonthalia

"The maximum margin of safety tells that the Nifty can test 22,000-22,500," Sonthalia calculated based on the P/E, while caveating that things could change 'very fast' depending on the government spending, due in H2FY25.

The benchmark Nifty 50 index can test the lows of 22,000-22,500 levels given the muted earnings for the next two fiscal and the continued foreign selling, Manish Sonthalia, CIO, Emkay Investment Managers said in a conversation with CNBC-TV18 on November 25.

Nifty 50 has been pencilling in an optimistic price to earnings (P/E) multiple in recent years as compared to the 12-year average, Sonthalia said, adding that given the 'anaemic' earnings growth for FY25, and projections of 10-12% for the next year, one cannot decisively say if the corrective phase is behind us.

"As things stand today, we are looking at a 10-12% earnings growth for Nifty 50 companies for FY26, and may 10-15% for FY27. The average of FY26 and FY27 comes to Rs 1245 per share Nifty EPS." Manish Sonthalia said. "The maximum margin of safety tells that the Nifty can test 22,000-22,500," Sonthalia calculated based on the P/E, while caveating that things could change 'very fast' depending on the government spending, due in H2FY25.

Sonthalia made the case for looking for signs of earnings revival first, before deciding if the index has seen the bottom. "Markets have given a 20 P/E multiple for this earnings growth over the last 3-5 years, whereas the 12-year long period average for Nifty 50 P/E has been 18x," he said, adding that based on the this multiple, a 22,000 level on Nifty 50 is not completely out of picture.

However, he said the jury is still out if the foreign selling pressure behind us, as markets "do not fall in a straight line". Given that EMs as a whole are selling, Sonthalia he would "keep his fingers crossed" to see markets can sustain this upmove.

"There is nothing to suggest that the (FII) selling would abate even now, as that has been the trend across EMs," Sonthalia said, adding that he was surprised to see the FII sell figure on Friday despite the sharp rebound, a day before counting of votes was due for Maharashtra elections. The money is shifting to the US market, thanks to Trump 2.0's proposed policies, Manish added.

"Correction may not happen in a single line. So, it is time to pick and choose," said Manish Sonthalia.

The Emkay CEO finds "great value" in PSUs, especially the large, monopolistic ones, given that state-run enterprises getting government orders has been a "big part of the earnings estimation for FY25". He added that the capex heavy-lifting has to come from the Centre, and the stocks in this space that have corrected up to 25-30% from recent highs could be looked into.

Given Rupee's propensity to depreciate from here, Manish Sonthalia is betting on the export-oriented sectors such as IT, CDMOs and Pharma. He is very bullish on platform companies catering to the financialization theme.

"I see a structural re-rating in the financialization of savings theme, which includes stock exchanges, depositories, wealth management companies, online broking, MF distributors - these can see a re-rating over next 3-4 years," Sonthalia added, while agreeing that the near-term valuations for these names may be expensive.