Gautam Duggad of Motilal Oswal Financial Services expects the first quarter of fiscal year 2023 to be challenging. The bias for the earnings seems downward as the impact of the rise in input cost has not been fully priced in.
"You may see June quarter earnings very modest compared to March and December quarters and then subsequently where the input cost burden settles, earnings will progress but must say that there is a clear downside risk to the earnings", Gautam Duggad of Motilal Oswal said in a CNBC TV interview.
Duggad expects banking, auto and oil & gas companies will do well in 1QFY23. Commercial vehicles started well but passenger vehicles and two wheelers likely to face weak performance. M&M & Maruti are the preferred bets in the auto space, Duggad added.
"We expect the full impact of elevated input costs to be felt in 1HFY23 as 4QFY22 had some benefits of lower RM inventory. We find more value in large-caps than mid-caps given the relative valuation equation. That said, we reiterate that earnings delivery is crucial for markets to hold, in an adverse milieu of volatile and challenging macro", Duggad added.
Duggad said FY22 was a huge high in terms of earnings per share growth. EPS growth came in 35%, its biggest jump since FY04. The growth has been contributed by metals, oil & gas and BFSI sectors. More than half of the incremental growth was steered by BFSI, driven by a modest revival in credit growth and improvement in asset quality trends. BFSI, Commodities and IT accounted for 90% of incremental earnings year on year.
"The adverse macroeconomic backdrop with heightened worries on rising interest rates, elevated crude oil prices and liquidity tightening has kept the market volatile and jittery. Meanwhile, the domestic earnings season continues to remain healthy and provides a silver lining, notwithstanding the challenges faced on multiple fronts", said Duggad.