Persistent concerns over market valuations have worsened with 34 Nifty companies reporting flat net profit, while revenues grew 5 per cent, while EBITDA grew just one per cent.
At the end of October, 34 of the 50 Nifty companies announced their results. Nine reported profits below expectations, while 10 posted profits above expectations, and 15 posted in-line results, Motilal Oswal Financial Services said.
Among Nifty constituents, ICICI Bank, Wipro, HCL Technologies, Bharat Electronics, Tech Mahindra, Maruti Suzuki, L&T, Cipla, Tata Consumer and JSW Steel exceeded earnings expectations. Conversely, BPCL, Coal India, IndusInd Bank, Ultratech Cement, Nestle, Kotak Mahindra Bank, NTPC and Bharti Airtel missed earnings estimates in the September quarter.
Consumption has emerged as a weak spot, with certain BFSI segments facing pressure on asset quality.
Gautam Duggad, research analyst at MOFSL, said Nifty EPS has been reduced by seven per cent to 5 per cent in the last six months, the lowest in the last five fiscals. The Nifty is currently trading at a trailing-twelve-month price-to-earnings ratio of 21 times, in line with its long-term average of 20 times, he said.
Despite the recent decline of 7-8 percent from highs, broader markets are still trading at expensive valuations (NSE Midcap 100 at 30 times price-to-earnings), the report said.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said that after returning 25 per cent and 30 per cent in Samvat 2080, Nifty and Nifty 500 fell 6.2 per cent last month, causing unrest among investors.
Given high valuations and concerns about a slowdown in earnings growth, FIIs extended their selling spree and sold shares worth ₹1.14 lakh crore last month, he said.
In such a scenario, investors should focus on stock-specific investments, where second-quarter results are good and earnings prospects are clear, he added.
While a slowdown in passenger car demand was expected, two-wheeler volumes were also lower than expected during the festive season, the report said. Management remains cautiously optimistic about a recovery in export markets.
Six leading cement companies have reported moderate volume growth and a 7 percent decline in realization due to price pressure. As a result, total sales fell 3 per cent and EBITDA/tonne fell 26 per cent to ₹705 per tonne year-on-year. Pent-up demand, a rebound in construction activity and the implementation of infrastructure projects after the festive season should lead to a recovery in demand and profits should improve in the second half, the report said.
