The June 2023 quarter earnings season so far has been muted on account of results disappointments or slower growth in IT, cement, metals and oil & gas sectors.
The soft outlook on IT is being compensated by pharma exports, says Vinod Karki, ICICI Securities equity strategist. He adds that while the Indian IT services sector doesn t have any structural issues, resetting itself is painful, with short-term uncertainty. However, the investment cycle aided by real estate and manufacturing cycles give confidence that future demand will be sustained, meaning the earnings downgrade cycle will not be there.
Equity strategist Vinod Karki of ICICI Securities believes that the market valuation peak will be around 19-20x PE, but as long as earnings growth continues to expand at around 15%, the market will continue to grow. Karki also commented on the agriculture chemicals sector, suggesting that valuations are nearing a peak and growth concerns could cause multiples to peak out.
Notwithstanding the risk involved, analysts are upbeat on micro-cap investing as India remains in a firm bull market.
Moreover, these stocks are available at relatively cheaper valuations compared to large, mid and small caps, assuring alpha returns.
With a market-capitalisation (market-cap) of up to Rs 10,000 crore, micro-cap stocks are outside the purview of Nifty 500 stocks, and are ranked from 501 to 750 in the market-cap ladder.
India’s equity valuations measured using the market capitalization to GDP (gross domestic product) ratio is above its long-term average. Also known as the Warren Buffett indicator the measure stood at 95% in FY23, showed an analysis by Motilal Oswal Financial Services Ltd.