The blues of earnings growth have been evident on the markets, especially following the third quarter earnings, and are stronger now due to the past run-up in the markets, according to Shreyash Devalkar, head of equity at Axis AMC.
"In earnings, the top line growth was as slow as last year. Which means the top line growth was slow last year as well, but the margins were good. This led to bottom line growth," said Devalkar.
The fall has not been spread equally across categories as some sectors and sections have seen sharper cut, while others not as much.
"Nifty has fallen lesser than Nifty Next 50. The story is different in Nifty 50 and the story is different in Nifty Next 50," he said. The market has gotten divided into two halves, according to Devalkar.
There is the first section, where there is low growth companies like utilities, financials, FMCG, auto and oil and gas along with others. These companies have lower valuation risk due to the low growth, Devalkar explained.
The second part is sectors with high potential that come with a lot more risk as well. Sectors with high growth, like power, capital growth, EV, fintech, retail have high growth that is paired with high valuation risk.
Finding Good Valuation
"Market was about stock picking for the last two to three years. One needs balance of carrying low growth risk and valuation with high valuation risk with high growth," he said.
Valuations are if not mouth-watering or attractive, reasonable. Those pockets are few. Expecting all the stocks to go all the way back up may not be right, Devalkar said. With investors comparing pre-and post-Covid returns, these expectations may not come through, he said.
Some stocks are capable of matching these returns, but spaces with good valuations are only emerging now. To find these pockets, investors need to keep their expectations low as well, he said.
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