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Recent stock rally could spur risky behaviour typical of bull market
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IANS | 06 Jun, 2023
Favourable movement of drivers of equity valuations over the past year
and recent stock rally could extend itself into risky behaviour going
ahead as investors become increasingly willing to accept lower returns
for taking higher risks, ICICI Securities said in a research report.
The aforementioned behaviour is typical of a bull market
environment and currently starting to manifest itself in terms of
diminishing earnings yield spread of small and midcaps over large caps,
the report said.
"Despite the reversal in drivers of 'cost of
equity' for Indian stocks from elevated levels, the ultra-low interest
rate environment in developed economies is over. Transition from an
environment of abnormally low interest rates to normal levels of
interest rates may limit high returns from risk assets like equity.
Given the sharp rally from Mar'23 lows, our NIFTY 50 target of 20,000
implies a modest 8 per cent upside from current level," the report said.
"We continue to prefer beneficiaries of the investment and
credit cycle in the economy along with high-end discretionary
consumption -- banks, capital goods, utilities, telecom, real estate,
building material and discretionary consumption," it added.
Along
with drivers of 'cost of equity' dipping, earnings growth outlook also
improved with Q4FY23 earnings season having significantly higher number
of beats and in-line results as compared to misses; GDP growth has been
robust resulting in an upgrade in FY23 growth to 7.2 per cent.
Q4FY23
result season indicates earnings beat and in line significantly outpace
earnings miss by a ratio of 11:7 (beats-92, in line-18, misses-72) for
the NSE200 universe.
Within the universe, financials, autos,
discretionary consumption and power sectors saw higher beats whereas
pharma, technology and energy sectors saw higher misses, the report
said.
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