Open Interest: Nifty Has A Range And It Depends On How Earnings Will Play Out

Monday greetings to you! Welcome to the second edition of 'Open Interest', a weekly newsletter from NDTV Profit, where we bring you market trends to make the most of.You can subscribe to our daily and weekly newsletters here.Let's begin..Nearly a third of Nifty 50 companies are trading at a forward FY26 price-to-earnings ratio of more than 25 times consensus earnings. This criterion applies to nearly half of the Nifty 50 stocks, accounting for approximately 34% of the Nifty 50's weight. There are more companies valued at more than 25x of FY26 valuation as compared to two years ago on FY24 valuations.Except ITC, all FMCG companies are trading above a 25x P/E ratio. This is despite the Nifty FMCG index falling into the 'bearish' zone, tumbling nearly 21% from its peak last year and losing over Rs 6 lakh crore in market cap. Nestle India and Tata Consumer Products are the most expensive stocks, trading at 64.2x and 57.4x, respectively, while ITC trades at 22.7x forward earnings.The Nifty 50 is trading at 19.2x forward earnings and is expected to post an earnings per share of Rs 1,190 in FY26, based on consensus net profit estimates for the fiscal for all Nifty companies on Bloomberg.Even after the recent addition of Zomato and Jio Financial Services to the Nifty 50 Index, the benchmark will be trading at 19.7x forward earnings and is expected to post an earnings per share of Rs 1,164 in FY26. Clearly addition of platform companies will unstable profitability path and yet to be proven business model are likely to reduce EPS for the Nifty and inflation the index valuation..Banks, Telecom, Healthcare — Citi's Top Themes As 13% Upside Seen For Nifty 50 After 'Meaningful' Correction.The IT sector is another area trading above the 25x P/E ratio, with TCS trading close to 30x FY26 earnings. Together, the FMCG and IT sectors make up 21.2% of the benchmark index's weight, posing a risk to the sector. Both sectors are expected to recover only in the second half of the year and could see further earnings downgrades as the fourth quarter ends. The FMCG sector faces volume challenges and input cost inflation, while the IT sector deals with slow recovery and pricing pressure due to US uncertainties.Public sector undertakings like BPCL, SBI, Coal India, and ONGC are trading below a 10x P/E ratio, with Hindalco Industries and IndusInd Bank being the only private sector companies trading below 10x P/E.The Nifty 50 is currently playing out a few earnings scenarios. At current consensus earnings and Nifty 50 constituent stock price targets for FY26, the 50-stock benchmark is looking at a P/E of 22.8 times and a price target of around 26,900 levels in a bullish scenario. If the earnings of overvalued stocks (i.e., stocks with a P/E of more than 25) are reduced by 5%, the Nifty is looking at a level of 22,881, which is around the current level at which the Nifty is trading. This implies that the stock market is factoring in a 5% correction to the earnings of consumer, FMCG and IT stocks. In the last three quarters, brokerages have factored in reductions in price targets for Nifty companies.More importantly, if the entire Nifty 50 gamut witnesses a 5% cut in net profits, at 19.2x forward P/E, the Nifty is looking at a level of 21,704.Hence, the Nifty 50 is expected to move in a range of (−)5% to 17% from the current levels.Unlike in 2022-23, where FMCG and financials were highly valued, this time around it is FMCG and IT..NDTV Profit Conclave: Leaders Outline Vision For Viksit Bharat 2047— Check Highlights.Before wrapping up, we leave you with a few notable market trends we observed over the past few days:We hosted the maiden NDTV Profit Conclave last week, where the top voices from markets, business and policy joined us to chalk out the path to a Viksit Bharat. Veteran market player Raamdeo Agarwal warned of further downturn in small-, and mid-cap stocks.Meanwhile, market observer Ridham Desai, at the Conclave, sees this period as the dawn of value investors.Two top brokerages — Morgan Stanley and BofA — took contrasting stances on when Indian market can bounce back.As market continued to bleed, FII holdings hit an 11-month low.Paytm rival Mobikwik is down 50% from its highs. But there is one cohort of investors that has minted crores. Read here.That's all from us.May the markets be ever in your favour,Sajeet Manghat.

Open Interest: Nifty Has A Range And It Depends On How Earnings Will Play Out

Nifty 50 is expected to move in a range of (−)5% to 17% from the current levels considering the earnings scenario that comes into play.

NDTV Profit

NDTV Profit

Follow Us

DOWNLOAD THE APP

Open Interest: Nifty Has A Range And It Depends On How Earnings Will Play Out

Nifty 50 is expected to move in a range of (−)5% to 17% from the current levels considering the earnings scenario that comes into play.

Choose a plan

Follow Us

DOWNLOAD THE APP