Indian indices have been on a downward spiral in February with external risks continuing to rise in 2022. Global factors from Russia invading Ukraine, surging crude oil prices to concerns regarding the US Fed raising rates at an aggressive pace has kept the market sentiment weakened.
In a recent report, domestic brokerage house Motilal Oswal noted that even as the US Fed signaled its intention to raise interest rates and fight inflation, the Russia-Ukraine conflict has further raised market volatility across asset classes, hastened the risk-off sentiment, and drove the correction in equity markets.
During the month of February, Nifty fell the most (5 percent, 815 points) on Feb 24, 2022, its highest single-day decline on an absolute basis since the COVID-led mayhem in March 2020 after Russian President Vladimir Putin's decision to launch a special military operation for demilitarization of Ukraine. Overall, the index lost 3 percent for the month amid volatility.
Also, close to half of the Nifty constituents are now trading at a discount to their respective 10-year average valuation metrics making it a good opportunity to buy some quality stocks at lower valuations.
"Corporate earnings remain resilient, as reflected in the 45 percent earnings growth in Nifty constituents in 9 months of FY22, despite headwinds like the second and third COVID waves and consequent lockdowns, sharp input cost inflation, and supply chain dislocations," it said.
The brokerage also noted that amid the uncertainty and rising geopolitical scare, the dollar-rupee duo has remained relatively stable in 2022 YTD, despite higher commodity prices (crude oil) and FII outflows of $9.3 billion. This equation could change if crude oil prices remain elevated for a longer period, it added.
The brokerage has come out with its top picks after the recent correction.
"Our portfolio construction is premised on stocks where the earnings visibility remains solid, pricing power is healthy, and the recent correction has led to moderation in valuations. We continue to remain biased towards largecap," it stated.
Its top picks include HDFC, SBI, Wipro, HCL Tech, L&T, Tata Motors, HDFC Life, Dabur, Godrej consumer, Apollo Hospitals, Gland Pharma, and Macrotech Developers among largecaps. Meanwhile, in broader markets (midcaps and smallcaps), it prefers Canara Bank, Jubilant FoodWorks, SAIL, Ashok Leyland, Dalmia Bharat, Zee Entertainment, Whirlpool, ICICI Securities, GR Infraproject, Zensar Tech, Mahanagar Gas and Transport Corporation of India.
After the recent correction, the Nifty is now trading at 19x/16.5x FY23E/FY24E earnings, said MOSL.
| Stock | Correction from 52-week High (%) | FY22-24 EPS CAGR (%) | Stock | Correction from 52-week High (%) | FY22-24 EPS CAGR (%) |
|---|---|---|---|---|---|
| HDFC | -21.7 | 13.5 | Canara Bank | -19.5 | 26.8 |
| SBI | -12 | 29.5 | Jubilant Food | -36.4 | 27.8 |
| Wipro | -24.9 | 12.3 | SAIL | -36.2 | -16.1 |
| HCL Tech | -18.2 | 17.7 | Ashok Leyland | -22.6 | - |
| L&T | -12.6 | 20.9 | Dalmia Bharat | -38.6 | 24.2 |
| Tata Motors | -15.3 | - | Zee | -39.5 | 19.9 |
| HDFC Life | -32.6 | 19.9 | Whirlpool | -34.5 | 68.5 |
| Dabur | -14.4 | 15.2 | ICICI Sec | -25.6 | 7.4 |
| Godrej Consumer | -32.6 | 19.8 | GR Infra | -40 | 21.1 |
| Apollo Hospitals | -19 | 30.2 | Zensar Tech | -41.1 | 25 |
| Gland Pharma | -25 | 28.7 | MGL | -43.4 | 18.8 |
| Macrotech Dev | -26.7 | 26.3 | TCI | -27.7 | 18 |