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Market volatility likely to remain high, equity inflows to be robust; check top largecap, midcap stock picks

Motilal Oswal Financial Services expects the Nifty universe to grow at a faster pace by 15% in the second half of FY23 compared to 10% growth in the first half.

Market volatility likely to remain high, equity inflows to be robust; check top largecap, midcap stock picks
Nifty valuations are at a multi-year high premium over EM countries and thus could induce volatility backed by global developments.

Global equity markets have been witnessing negativity recently as central banks are raising interest rates to tame inflation. The three main Wall Street indices have tumbled around 10-15% in the last month. In comparison, Indian equity markets have remained resilient, declining around 2% in a month. According to analysts at Motilal Oswal, this resilience is likely to continue going forward. However, given the multiple moving parts such as rates, currency, bonds, and geopolitics, volatility is expected to remain elevated but directionally, trends will get better. The brokerage expects domestic equity inflows to remain robust and at the margin. As the global climate gets better, FII selling may moderate as well.

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Analysts noted that Nifty valuations are at a multi-year high premium over EM countries and thus could induce volatility backed by global developments. From share market investment perspective, their preferred ideas are a combination of companies: which can benefit from consistent earnings growth; which can address bigger market size with long-term growth runway and favorable industry structure as well as some inherent moats; and where valuations have corrected meaningfully and offer an attractive risk-reward equation. The brokerage maintains our OW (overweight) stance on BFSI, Auto, Consumer & IT and UW (underweight) stance on Energy, Pharma and Utilities.

Top stock picks

Largecaps: ICICI Bank, IndusInd Bank, SBI, Infosys, ITC, Maruti Suzuki, Titan Company, Ultratech Cement, Apollo Hospitals, Bharti Airtel, and L&T.

Midcaps: Ashok Leyland, Jubilant Foodworks, Macrotech Developers, Metro Brands, Vinati Organics, Angel One, Lemon Tree Hotel, CAMS and VRL Logistics, and Federal Bank.

Motilal Oswal Financial Services expects the Nifty universe to grow at a faster pace by 15% in the second half of FY23 compared to 10% growth in the first half. The key contributors to Nifty’s H1FY23 growth were ONGC, Coal India, Reliance Industries, ICICI Bank, and HDFC Bank as these five stocks contributed 141% of earnings growth. Going forward, key contributors to Nifty’s growth in the second half are expected to be Tata Motors, ONGC, SBI, Reliance Industries, and JSW Steel.

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According to the brokerage report, with the onset of the festive season in India, domestic demand recovery is expected to continue and propel discretionary consumption in India going forward after a pandemic-induced hiatus of two years. “Coordinated rate hike cycle across the globe is now moving closer towards its final leg, in our view, as we expect inflation to peak barring a major unforeseen spike-up in geopolitical dynamics,” the report said. Analysts expect RBI to hike repo rate by another 60 bps over the next two MPC meetings with terminal repo rate at 6.5%.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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First published on: 11-10-2022 at 12:03 IST