HSBC sees no risk of a sharp decline in Indian stocks
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The market has seen a rally since the end of March, driven by sustained buying from foreign investors and improved valuations.
However, uncertainties related to a potential global recession may restrict the market’s range in the near term, HSBC said in its recent note. The report, however, suggests that the risk of a significant decline has diminished.
HSBC emphasises that the earnings trajectory will be a crucial factor, with an anticipated 19.2 percent on-year growth expected for the Nifty 50 index in FY24. The positive trends observed during the fourth quarter of FY23 earnings season indicate promising prospects for the upcoming fiscal year.
Among the 135-plus companies covered by HSBC, 93 have reported their earnings. Sales figures have generally met expectations, with 44 percent of the companies surpassing the earnings estimates and 27 percent falling short. Notably, banking, non-banking financial companies (NBFCs), automotive, and fast-moving consumer goods (FMCG) sectors have shown strong performance in exceeding earnings expectations.
The information technology sector has put up mixed results, while insurance and basic materials have experienced more instances of earnings falling short of expectations.
Overall, the fourth quarter of FY23 has seen on-year increases of 16 percent in average sales, 17 percent in EBITDA, and 31.6 percent in profit after tax (PAT). Earnings have been surpassing consensus expectations. Additionally, margin pressure has eased, with 55 percent of the stocks reporting on-year margin expansion in fourth quarter. Despite some downgrades, the estimated earnings growth for the Nifty50 index for FY24 remains a healthy 19.2 percent year-on-year.
HSBC believes that the market, after a slow start to the year, is now progressing positively. The strong Q4 earnings season further bolsters HSBC’s confidence. While there may still be some earnings downgrades throughout the year, the chances of significant downward revisions are deemed limited by HSBC.
