Automobile, private and public sector banks, capital goods, cement and healthcare were among the 11 sectors on Dalal Street which traded below their historical averages on May 31, 2022, according to Motilal Oswal Financial Services. Data available with the brokerage showed that the price-to-earnings ratio of the auto sector was around 24 times against the 10-year average of 24.9 times, indicating a discount of 3.50 per cent.
Likewise, PSU Banks, private banks, capital goods, media, metals, oil & gas (ex RIL), real estate and utilities were available at a discount of up to 40 per cent compared with their historical averages.
Commenting on various sectors, the brokerage said that the recent cut in fuel prices is positive for the auto sector. “Normal and timely monsoon should help tractor demand,” Motilal Oswal Financial Services said in a report.
While sharing its views on the public sector banks, it added that earnings outlook has improved led by a reduction in credit cost as PCR has been strengthened over the last few years.
“SMA pool continues to moderate augurs well for incremental slippages to remain controlled and keep the credit cost limited. We believe more rate hikes are round the corner that could potentially impact PSU banks’ treasury performance adversely and drive higher MTM losses over Q1FY23, though improvement in operating earnings would enable some absorption of these losses,” the brokerage said.
With a fall of 3 per cent, the benchmark equity indices BSE Sensex and NSE Nifty extended their fall for the second straight month in May. Market watchers believe that rising concern over inflation and heavy selling by foreign institutional investors’ dampened sentiment. FIIs recorded the eighth consecutive month of outflows at $4.9 billion in May. However, the outflows were more than offset by material inflows by domestic institutional investors (DII). In May 2022, DIIs posted the highest inflows since March 20 at $6.1 billion.
Considering the present market scenario, Motilal Oswal Financial Services finds more value in largecaps than midcaps given the relative valuation equation. “We reiterate earnings delivery is crucial for markets to hold, in an adverse milieu of volatile and challenging macro,” the brokerage said, adding it is positive on Reliance Industries, Infosys, ICICI Bank, SBI, Bharti Airtel, Titan Company, Ultratech Cement, M&M, Hindalco, Godrej Consumer and Apollo Hospitals in the largecap space.
On the other hand, it prefers Macrotech Developers, Ashok Leyland, L&T Technology, Jubilant Foodworks, APL Apollo Tubes, GR Infraproject, Angel One, Sapphire Foods, VRL Logistics, and Lemon Tree Hotel in the midcap and smallcap space.
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