The lingering concern on market valuations has aggravated with 34 Nifty companies reporting flat net profit, while their sales have grown 5 per cent, with EBITDA growth of just one per cent.
As of October-end, 34 of the 50 Nifty companies have announced their results. Nine reported profits that were below expectation, while 10 posted profits that were above expectations, and 15 registered in-line results, said Motilal Oswal Financial Services.
Among the Nifty constituents, ICICI Bank, Wipro, HCL Technologies, Bharat Electronics, Tech Mahindra, Maruti Suzuki, L&T, Cipla, Tata Consumer and JSW Steel exceeded profit estimates. Conversely, BPCL, Coal India, IndusInd Bank, Ultratech Cement, Nestle, Kotak Mahindra Bank, NTPC and Bharti Airtel missed profit estimates in the September quarter.
Consumption has emerged as a weak spot, while select BFSI segments are seeing asset-quality stress.
Gautam Duggad, Research Analyst, MOFSL, said overall, Nifty EPS has been downgraded by seven per cent to 5 per cent in the last six months, the lowest in the last five fiscals. The Nifty is currently trading at a 12-month forward P/E of 21 times, in line with its long-period average of 20 times, he said.
Despite the recent 7-8 per cent fall from the highs, the broader markets are still trading at expensive valuations (NSE Midcap 100 at 30 times forward P/E), said the report.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said after delivering a return of 25 per cent and 30 per cent in Samvat 2080, Nifty and Nifty 500 fell 6.2 per cent last month, triggering anxiety among investors.
Given the elevated valuations and concerns over deceleration in earnings growth, FIIs extended their selling spree, and sold shares worth ₹1.14 lakh crore last month, he said.
In such a scenario, investors should focus on stock-specific investment, where Q2 results have been good and earnings visibility is bright, he added.
While a slowdown in passenger vehicle demand was anticipated, the report said two-wheeler volumes in the festive season were also lower than expected. Management remains cautiously optimistic about a recovery in export markets.
Six leading cement companies have reported muted volume growth, and a 7 per cent decline in realisation due to pricing pressure. Consequently, aggregate revenue declined 3 per cent, EBITDA/t declined 26 per cent to ₹705 a tonne year-on-year. Pent-up demand, a pick-up in construction activity, and execution of infrastructure projects post the festive season should lead to demand recovery and profits should improve in the second half, it added.