“On the Nifty index stage, we observe that 29% of FY22 estimated revenue pool is prone to be benefiting from rising crude and energy 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 just isn’t immediately impacted.
Costs of commodities from metals to farm merchandise have shot up prior to now one month following Russia’s invasion of Ukraine, leading to a provide shortfall. Firms resembling ONGC and Oil India might 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 scenario remains to be unfolding, the present spike in costs is unlikely to have a big direct damaging impression on index earnings at an combination stage whilst sector or stock-specific disruption performs out,” stated Motilal Oswal Monetary Companies. “That stated, if value spike sustains for longer, the ensuing greater inflation and demand destruction might impression 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 beneath its 10-year common for the primary time since November 2020.
“Whereas the geopolitical and inflation-led uncertainties play out, submit 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 scenario.”
The telecom sector is essentially insulated from the geopolitical considerations and the associated commodity value improve and overseas forex fluctuations. The rupee has depreciated practically 3% towards the US greenback thus far this yr and appreciated 1% towards the euro.