By Narendra Solanki

The Indian markets have shown impressive performance since bottoming out in June-22 end and have so far stood (Nifty50) at about 18% gain from Jun-22 low and Aug-22 high of which about 7% gains alone in August-22 month so far with few trading days remaining.The markets have largely outperformed its Asian peers and major drivers for this outperformance were both easing global conditions around inflation and extreme US Fed’s hawkishness concerns and robust domestic economic conditions. Also, the recent period coincided with the quarterly results which also added to the tailwinds to already strong markets as largely results have been good on revenue front and margins have also shown improvement and beaten estimates and defied concerns surrounding deterioration due to ongoing supply and commodity inflation.

Coming to the just concluded quarterly results, the Nifty50 companies have on aggregate posted a growth of about 32.7% and 1.2% in its revenues on YoY and QoQ basis respectively. On a sectoral basis, almost all the sectors have posted growth in double digits barring only healthcare which grew by about 6% YoY.

On the margins front, the operating margins on aggregate basis improved 80 basis points QoQ to about 22% for Nifty50 companies in Q1-FY23 while stemming the decline by just 140 basis points over the same quarter previous year. The expectations were factoring in larger deterioration before the results season. On a sectoral basis, the major improvement in margins were seen in financials led by lower provisioning and better NPA numbers.

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Analysing the consensus and the current results, about thirty companies in Nifty50 have beaten the consensus estimates on revenue front and those remaining which missed sixteen of these companies have missed estimates by within 10% range. Similarly, the earnings have also surprised on a positive side however the intensity was lower than that of revenue estimates. Also, earnings estimates were more tuned towards concerns of deterioration prior to the results season which wasn’t the case. Twenty eight companies in Nifty50 have beaten the estimates out of fifty.

Coming to the valuations, the Nifty50 is currently trading at relatively balanced valuations right now on a forward basis and is neither too expensive nor very cheap. Analysing the constituent companies and comparing to their five year historic forward valuations, there are only seven companies which are currently trading at more than one standard deviation above their five year average. In all, 26 companies are trading with positive standard deviation while remaining below their five year average. This is on the back of 32 constituent companies weighing about 73% in Nifty50 weights reporting growth in at least one quarter in the last four.

Coming to the forward outlook, the markets are currently trading at fair valuations with expectations of sustained growth in revenues and sequential improvement in profitability margins. On sector specific, capital goods, engineering and manufacturing sectors including chemicals, auto ancillaries, defence have posted better results and should continue to perform, financials mainly banks should also do good. Also, the consumer sector should also gradually improve going ahead. In the current state the markets are more in a stock specific zone and should gradually improve along with earnings.

(Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers. Views expressed are the author’s own.)