stocks to buy: Market all set for another leg of rally; ICICI Sec sees Nifty at 19,000 by March 2023

The Omicron variant has receded sharply while commodity prices and bond yields have started to stabilise. The Russia-Ukraine conflict will likely be scaled down from global nuclear brinkmanship to a local conflict, analysts hope. Dip in the latest inflation data for the US, general cooling down of commodity prices and the expected increase in oil output by OPEC+ will also support markets now.

Moreover, a likely monetary tightening by RBI and fiscal measures taken by the government will further bring inflation down.

“Q1FY23 is the first quarter of no covid restriction on movement since the onset of the pandemic in 2019. High-frequency indicators for the quarter so far indicate robust economic recovery, which should gather momentum going forward,” said Vinod Karki of .

He said improving macro indicators are reflected in the fear index (VIX) that is receding and will most likely put a floor on equity valuations on a 1-year forward P/E basis, which fell from around 23x in October 2021 to less than 18x during the May 2022 sell-off.

“Incorporating the above factors and trends, our March 2023 target for the Nifty 50 stands at 19,000 (a potential upside of 15 per cent from current levels). We are overweight on stocks driven by investment rate, savings rate, credit growth, exports and pent-up discretionary consumption,” said Karki.

Total selling in equity in May amounted to Rs 39,993 crore, as per data available on NSDL. This took the total FPI selling in 2022 till May 31 to Rs 1,69,443 crore. This massive selling was the major factor for the weakness in the Indian market, even though much of it has been balanced with substantial domestic flows.

Lately, the improvement in macro indicators have also led to a tapering of foreign outflow in recent days. In the early days of June, the selling has been in very small amounts, which is a break from previous many weeks.

“If the dollar and the US bond stabilises, FPI selling is likely to stop and may even reverse. On the contrary, if US inflation remains elevated and dollar and bond yields continue to rise, FPIs may resume selling. US inflation data is the key,” said VK Vijayakumar, Chief Investment Strategist at

.

Analysts have also been buoyed by the improving outlook on agriculture and the manufacturing segment. Karki pointed out that PMI data for manufacturing have shown expansion. Export growth, job hiring and GST collections have also improved. Q4FY22 earnings were also robust — despite the challenging environment — with aggregate corporate ‘profit to GDP’ ratio reaching 4.5 per cent in FY22. Add to it the forecast of a normal monsoon, things are looking bright for the economy.

He said market correction and profit expansion have resulted in valuations receding to

reasonable levels. Industrials plus financials, which constitute 72 per cent of the aggregate profit pool, are reasonably valued at a trailing P/E of 15x-20x compared to historical levels while the remaining 28 per cent of the profit pool (services, consumption and healthcare) is still at a high trailing P/E of 33x.

Though forward P/E for the Nifty50 index at around 18x is at its lowest level since CY16 (excluding the brief covid period), while P/B at 3x is at its long-term average level and ‘market cap to GDP’ is marginally above the 100 per cent mark.

At such environment, among top picks for ICICI Securities are: SBI, Axis Bank, HDFC Bank,

, SBI Life, Larsen & Toubro, NTPC, NHPC, GAIL, Oil India, Coal India, , , , , , , , , , Metro Brands, , , TVS Motors and .

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)