Prior to the Q1 Earnings Season, the Best Picks As Nifty Quality Stocks Trade at a Discount

Updated: Jul 17



The past few weeks have seen continued volatility in the domestic equity markets. The recent Dalal Street downturn has caused the Nifty50 valuations to fall below historical averages, making several firms appear to be undervalued. The Nifty50 index's half of the stocks are currently trading below their long-term valuation multiples. The Nifty50 has retreated 20% from its peak levels, according to Santosh Meena, head of research at Swastika Investment Ltd. Individual equities have corrected more than that. The war in Russia and Ukraine, the growing inflation that has forced central banks to raise interest rates, and the overpriced stock indexes, Among the factors contributing to this selloff, are the slowing of global economic growth. However, given that the prices have turned fair, the current correction is a wonderful opportunity to build up a portfolio of high-quality stocks.


The 12-month forward P/E for the Nifty50 was 17.6 times at the end of June, which was 9% below the market average.

In terms of sectors, the auto sector PE of 23 times is 8% less than its historical average of 25 times. The metals sector's current EV/Ebitda ratio of 4.6 times is significantly lower than its 6.6 times 10-year historical average. The technology sector is currently trading at a P/E of 22.2 times, which is a 19% premium to its historical average of 18.6 times and notwithstanding the recent drop.


The markets have underperformed in recent months due to several important variables, including the global uncertainty brought on by the conflict, rising interest rates, persistent inflation, and worries of a recession.


The market has remained erratic and uneasy due to the unfavorable macro backdrop, which includes increased concerns about rising interest rates, elevated crude oil prices, and tightened liquidity. After the downturn, the Nifty50 trades at 18.4 times FY23E, which is less than its 19.5 times P/E 10-year average. Given the relative valuation equation, we believe large-caps to be more valuable than midcaps, according to a note from Motilal Oswal.

What Should Investors Do Now?

Anand Rathi Shares & Stock Brokers' head of stock research, Narendra Solanki, stated: "For the current results season, investors should focus on two essential things: revenue growth and sustainability, as well as margins amid the present volatility phase. Businesses showing consistent growth momentum and stable to growing margins are anticipated to perform well. Investors could begin accumulating equities when markets start to stabilize and inflation shows signs of peaking during the second part of the current year, according to strategy.

"The investor's patience and psychological fortitude are being put to the test most severely during these difficult times. One of the finest times to invest is during unsure and turbulent times; as a result, we advise using the "buy the dips" technique. To avoid disappointment, investors must, however, lower their expectations, according to Meena.

Top Stock Picks

A few brokerages' strategy notes have some common recommendations for the June quarter earnings season, including ICICI Bank, Maruti Suzuki, SBI, Bharti Airtel, and others.

The top picks from the large-cap pack for Motilal Oswal Securities include Reliance Industries, Infosys, ICICI Bank, SBI, Bharti Airtel, ITC, Titan Company, and UltraTech Cement, Mahindra & Mahindra, Hindalco, and Apollo Hospitals.


Emkay Global's top picks include Tata Motors, Maruti Suzuki, SBI, and ICICI Bank.


In a statement about the banking industry, Asutosh Mishra, Head Of Research, Institutional Equity, Ashika Group, said: "We expect healthy profits growth in the banking space and hence see large private and public sector banks to continue to outperform the general market in the coming months. We choose ICICI Bank, SBI, HDFC Bank, and IDFC First Bank in the financial sector.

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