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BFSI Chronicle, 11 Edition September 2022
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sequentially and 490 bps y-o-y. Consequently, Net future starts getting discounted, the valuations look
Profit margin expansion remained restricted to 23 fairly reasonable. Money is not flowing into Russia,
per cent y-o-y in Q1 which is below market estimates. and China is reeling under double whammy of Covid
This, however, is tad better than the previous quarter spread and faltering property markets. Europe is
Net profit growth of 21 per cent y-o-y. Sectors that facing recession and US is on the verge of entering
faced headwinds to operating profit margins, such one. India, amidst all these, continues to be a bright
as metals and cement, took the maximum hit to spot with visibility of long-term earnings growth,
FY23 EPS estimates. Sectors that supported the Q1 moderation of inflation, deleveraged balance sheet
earnings momentum include Financials (Banks & of India Inc. and strong support from RBI and
NBFCs), Capital Goods, Automobiles, Consumer government to push reforms.
Discretionary and Real Estate. Companies in these
sectors witnessed reasonable earnings upgrades. Discernably, while the S&P 500 is down around 16.5
per cent YTD, Nifty is up about 3 per cent (as on
Analysts polled in Bloomberg, estimate Nifty FY23 9th Sep). Analysts are divided on whether Indian
EPS at Rs. 857 (mid Aug fig); down 3.5 per cent from markets are “decoupled” from the world market,
their earlier estimate of Rs. 884 level in end- June. or the divergence is a temporary aberration! Bulls
The EPS estimate of Nifty companies for FY24 which believe that India is a domestic demand driven
was earlier pegged at Rs. 995 has also been slashed economy and likely to remain somewhat immune to
by 2-3 per cent. global economic downturn. Also, global slowdown
pulling down energy prices is a boon for corporate
Interestingly, Indian market staged a swift come back profitability. Imported inflation cooling down and
of around 15 per cent from its mid-June lows on the RBI not having to resort to aggressive rate hikes is
back of improving macros and renewed FII flows. believed to be margin accretive. The other school
The headline Nifty gained 3.4 per cent in August of thought opine that the outperformance of Indian
’22. The broader markets also saw handsome gains markets is a temporary phenomenon. With the Indian
with Nifty Midcap index rising 6 per cent and Nifty economy closely integrated to global economy, any
Smallcap index registering a 5 per cent growth. The global economic downturn will eventually impact
total market-capitalisation of BSE listed companies corporate earnings and market performance back
increased to Rs. 280.24 lakh crores during the month. home. We may choose to take sides in this “debate
of decoupling”, but one thing where all opinions
As on Aug end, Nifty is trading at 19.5 times 12-month converge, is the view that markets are going to
forward PE compared to a long term average of 21. remain ‘VOLATILE ’ for an extended period of
India is trading at a 100 per cent premium to MSCI time. Systematic and disciplined investment as per
Emerging Market Index against a long-term average the planned asset-allocation is indispensible to sail
of 85 per cent. Expensive valuations have not deterred through the volatility successfully.
the FIIs to vigorously allocate money to India since
July. An inflow of Rs. 51,200 crores was registered in The Author can be reached out at ‘mukhdibyendu@
August alone (NSDL data). Earlier, the FIIs pulled gmail.com’
out around INR 2.5 lakh crores between October’21
and June ’22 due to geo-political uncertainties, rising The article is for academic purpose and should not
inflation and strong dollar which led to risk-off be construed as any advice/recommendation from
trades and money moving into safe heaven assets the Author.
like dollar. As per analysts, India’s valuation may
appear high from a historical perspective, but once Cut-off date for data used is Sep 10, 2022.

The Institute Of Cost Accountants Of India

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