- The Iran-Israel conflict and Hormuz closure caused sharp correction in Indian equities
- Indian rupee hit a record low, impacting external accounts and inflation expectations
- Nifty-50 and Midcap-100 indices fell ~11%, banking and autos sectors most affected
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Motilal Oswal Report
The ongoing Iran-Israel conflict has escalated beyond a regional dispute due to the closure of the Strait of Hormuz. This development has triggered a sharp correction in Indian equities, as a significant portion of India's oil and gas imports transit through Hormuz.
Concurrently, the Indian rupee has experienced a once-in-a-decade depreciation, complicating India's external accounts, growth prospects, and inflation expectations. While the US faces immense internal pressure to avoid further escalation, the situation remains highly fluid, necessitating careful and selective stock picking, as a swift resolution could trigger pent-up buying and short-covering.
The Nifty-50 and Midcap-100 have corrected ~11%, with sectors such as banking, automobiles, real estate, and consumer goods bearing the brunt due to higher risk aversion, panic-driven selling, and rising oil prices. Although markets typically recover over the long term, current structural disruptions to supply chains and inflation concerns are raising fears of prolonged market instability and delayed monetary easing.
The Nifty-50 is trading at a 12-month forward P/E of 17.7x, below its LPA of 20.9x (at a 15% discount). Further, its P/B of 2.6x represents an 8% discount to its historical average of 2.9x.
Given these relative valuations, the brokerage sees greater value in largecaps vs midcaps. Motilal Oswal is overweight on auto, PSU banks, diversified financials, technology, consumer discretionary, and capital goods and EMS, which are its key preferred investment themes.
The brokerage stays Neutral on telecom, cement, and healthcare, while retaining underweight stance on private banks, consumer staples, oil and gas, utilities, and metals within model portfolio.
Top Nifty-50 Ideas: Bharti Airtel, SBI, ICICI Bank, Lenskart, M&M, Titan, Bharat Electronics, Eternal, Tata Steel, Infosys, and Interglobe Aviation.
Top NonNifty-50 Ideas: TVS Motors, Groww, Indian Hotels, AU Small Finance, Dixon Tech, Premier Energies, Coforge, Radico Khaitan, Delhivery, and ACME Solar.
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