Dhananjay Sinha, Co Head of Equities & Head of Research, Systematix Group, points out that Nifty’s average earnings are around 4-5%, with a valuation of about 20-22 times. This results in a high PEG ratio compared to the S&P 500. It’s crucial to monitor the future earnings trend and see if the margin pressure in this quarter will continue.On Tuesday, sector-wise performance has not been that great, a case in point being the auto sector. After Eicher Motors’ numbers, all the two-wheeler counters once again seem to be under pressure. There are two debates going on: first, the consumption story could or could not play within the auto space and the other one is some valuation comfort that some of these investors are finding in the auto space. What is your reading for the particular sector?Dhananjay Sinha: In the auto space, the views are kind of fairly differentiated. There is no longer a uniform view across the sector. There is some expectation with respect to the provision that has been given in the budget, which is basically that there has been income tax cut, etc, and the RBI has also cut the rates. There is also an expectation that RBI might actually start some amount of relaxation as far as the retail lending stringency is concerned. So, it is quite possible that there might be some impetus that might evolve over a period of time, I think that is what the market is expecting. The other thing that people are expecting is with respect to the margins. I would say the margin pressure has been there, but I would say going forward there can be some moderation as far as the metal prices are concerned. We have seen the actions taken by the US on metal space….Do you spot any opportunities right here or will you stay away given the recent run-up in the past one couple of years and the valuations not being that supportive?Dhananjay Sinha: So, yes, we have been citing the valuation concerns over the past few months and we think that if we look at the earnings growth trajectory, the average earnings let us say for Nifty is hovering around 4% to 5% and with a valuation that you have around 20-22 times or somewhere there you are at a significantly high PEG ratio compared to the S&P 500. If you look at S&P 500 results, it has been growing at something like 16 odd percent if you look at this quarter and the positive surprises are much larger at 77% whereas in India the negative surprises are more. So, in that context the relative over-valuation is still there. What will be important is to really look at what the earnings trajectory would look like going forward and whether the margin pressure that we are seeing in the current quarter will sustain or not. You Might Also Like:Is the long-term growth story of capex stocks still intact? Shiv Sehgal answersA lot has been read from the Budget which is basically relating to the tax cut and also theinterest ratecut the RBI has done, has not really convinced the market about the momentum as yet. I g
Mer. Feb 12th, 2025
