Stock Market in August: Indian equities continue its gaining momentum; Nifty may grow by 10% in FY23 – Details

Stock Market in August: Indian equity markets in August 2022 carried on with momentum witnessed in July 2022. While there was some volatility in the second half of August 2022, the domestic equity markets ended the month with healthy gains, domestic brokerage house Kotak Institutional Equities said in its note.

In-line Q1FY23 earnings season and expectation of peaking inflation added to positive sentiments to the market, the brokerage said adding that the foreign institutional investors buying improved further in August 2022 as compared to July 2022.

Besides, the midcap and the smallcap indices outperformed the large indices like BSE30 and Nifty-50. Most of the sectors ended the month with strong positive returns.

The market rally over the past two months seems to have taken comfort from rising confidence over peaking inflation and expectation of moderate rate increase by Central Banks going ahead. However, Powell’s hawkish comments may correct this perception of US Fed easing on rate hikes soon.

India looks better placed with healthy economic recovery – one of fastest growing major economies. However, higher energy prices have negative implications and Indian economy do remain vulnerable from that perspective in terms of inflation, current account deficit, corporate profitability, currency.

Further, there are risk from slowdown in global demand. Post strong 40% earnings growth in FY22, Kotak Equities expects net profits of the Nifty-50 Index to grow by 10% in FY23 and by 15% in FY24.

In FY23E, the brokerage expects net profit growth across sectors (except metals & mining and oil & gas). However, sectors like automobiles, banks, diversified financials and telecom will likely contribute to the bulk of growth in net profits.

Nifty50 index is trading at a PE of 21.9x FY23E and 19.1x on FY24E. India’s economic and earnings recovery coupled by capital expenditure cycle, (including PLI scheme) is expected to keep Indian markets attractive over the long term.