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ICICI Securities says markets to see consolidation ahead, stock specific action to continue

ICICI Securities says markets to see consolidation ahead, stock specific action to continue

ICICI Securities says markets to see consolidation ahead, stock specific action to continue
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By Ankit Gohel  Jun 25, 2020 5:02:03 PM IST (Published)

With the equity markets surging almost 40 percent from their March lows, analysts expect a consolidation going ahead and see a limited upside from hereon in the near-term with persistent stock specific actions.

With the equity markets surging almost 40 percent from their March lows, analysts expect a consolidation going ahead and see a limited upside from hereon in the near-term with persistent stock specific actions.

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ICICI Securities believes that the economic impact of COVID-19 will be a bit more prolonged with intermediate hit on corporate as well as individual earnings.
The brokerage has turned cautious on markets at the prevailing level and said that broader indices would consolidate in a narrow range taking cues from progressive economic data points post COVID-19 led disruption, crude price movement and FII flows.
“The focus as an investor in such uncertainty should be on buying businesses that have sustainable competitive advantage (moat), limited leverage (strong B/S) and are capital efficient in nature,” ICICI Securities said.
Given cautious corporate management commentary, the demand recovery is expected to be gradual or U-shaped in nature as against earlier anticipation of a V-shaped recovery.
The brokerage has cut earnings estimates over FY20E-22E across all sectors barring the power sector and somewhat limited in the pharma space. The steepest decline is in the banking and the non-banking finance company (NBFC) space courtesy moratorium period on existing loans and consequent delay in the improvement of asset quality parameters along with the auto space given pressure on auto sales volumes and associated perils of negative operating leverage.
ICICI Securities has revised downward FY20E, FY21E, FY22E EPS estimates for Nifty by 22 percent, 27 percent, 20 percent to Rs 403, Rs 397, Rs 543 per share, respectively.
“With forward earnings growth now at 16.0 percent CAGR, over FY20-22E, albeit on a low base, we now value the Nifty at 10,300 levels i.e. 1.2x PEG on FY22E EPS of Rs 543 with corresponding Sensex target placed at 34,800,” the brokerage said in a report.
With respect to sectoral weights, there has been a minor tweaking.
The BFSI space weight has gone down further to 33.7 percent from 35 percent with index heavyweight in the oil & gas space further consolidating its position taking the segmental index weight to 14.6 percent (up 190 bps), it said.
The FMCG stocks have witnessed profit booking in the recent past, with their index weight declining from 12 percent to 10.4 percent.
These index weights are dynamic in nature due to market price movement and susceptible to change, going forward, the brokerage noted.
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