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“On the Nifty index stage, we observe that 29% of FY22 estimated revenue pool is prone to be benefiting from rising crude and vitality costs, whereas practically 18% of the revenue pool can profit from rupee depreciation,” stated Motilal Oswal in a shopper notice.
The brokerage stated solely 9% of FY22 estimated revenue pool is prone to be adversely impacted by the sharp spike in commodity costs, whereas 44-45% of revenue pool isn’t instantly impacted.
Costs of commodities from metals to farm merchandise have shot up up to now one month following Russia’s invasion of Ukraine, leading to a provide shortfall. Firms reminiscent of ONGC and Oil India may even see a rise of their earnings per share (EPS) by 7-12% for each $5 per barrel rise in crude oil realisation.
“Whereas the state of affairs remains to be unfolding, the present spike in costs is unlikely to have a major direct detrimental affect on index earnings at an combination stage at the same time as sector or stock-specific disruption performs out,” stated Motilal Oswal Monetary Providers. “That stated, if value spike sustains for longer, the ensuing increased inflation and demand destruction might affect development which in-turn might create draw back dangers to company earnings estimates.”
Whereas the Nifty is down 11% from its peak in October final yr, the broader market has witnessed a a lot sharper sell-off. After the latest correction, the Nifty is now buying and selling at an estimated value to earnings (PE) ratio of 18.72 occasions, which is barely under its 10-year common for the primary time since November 2020.
“Whereas the geopolitical and inflation-led uncertainties play out, put up the correction, we discover the price-value equation turning comparatively extra engaging, particularly within the broader markets on a bottom-up foundation,” stated the brokerage. “The wholesome earnings visibility can act as a cushion in an in any other case fragile exterior state of affairs.”
The telecom sector is basically insulated from the geopolitical issues and the associated commodity value enhance and overseas forex fluctuations. The rupee has depreciated practically 3% in opposition to the US greenback to date this yr and appreciated 1% in opposition to the euro.
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