Nifty 50: ‘Half of Nifty 50 companies to gain from commodity surge and rupee fall’

Mumbai: Half of the elements on the Nifty 50 index are more likely to profit from rising commodity costs and the rupee depreciation in FY22, in line with a research by Motilal Oswal Monetary Providers. Metals together with oil and fuel corporations are direct beneficiaries of rising costs, whereas oblique beneficiaries embody export-oriented sectors, particularly IT, which profit from rupee depreciation.

“On the Nifty index degree, we observe that 29% of FY22 estimated revenue pool is more likely to be benefiting from rising crude and vitality costs, whereas practically 18% of the revenue pool can profit from rupee depreciation,” mentioned Motilal Oswal in a shopper observe.

The brokerage mentioned solely 9% of FY22 estimated revenue pool is more likely to be adversely impacted by the sharp spike in commodity costs, whereas 44-45% of revenue pool is just not straight impacted.

Costs of commodities from metals to farm merchandise have shot up up to now one month following Russia’s invasion of Ukraine, leading to a provide shortfall. Firms reminiscent of ONGC and Oil India might even see a rise of their earnings per share (EPS) by 7-12% for each $5 per barrel rise in crude oil realisation.

“Whereas the scenario continues to be unfolding, the present spike in costs is unlikely to have a major direct destructive influence on index earnings at an combination degree at the same time as sector or stock-specific disruption performs out,” mentioned Motilal Oswal Monetary Providers. “That mentioned, if value spike sustains for longer, the resultant larger inflation and demand destruction may influence progress which in-turn may create draw back dangers to company earnings estimates.”

Whereas the Nifty is down 11% from its peak in October final yr, the broader market has witnessed a a lot sharper sell-off. After the current correction, the Nifty is now buying and selling at an estimated value to earnings (PE) ratio of 18.72 occasions, which is barely under its 10-year common for the primary time since November 2020.

“Whereas the geopolitical and inflation-led uncertainties play out, publish the correction, we discover the price-value equation turning comparatively extra engaging, particularly within the broader markets on a bottom-up foundation,” mentioned the brokerage. “The wholesome earnings visibility can act as a cushion in an in any other case fragile exterior scenario.”

The telecom sector is basically insulated from the geopolitical considerations and the associated commodity value enhance and overseas foreign money fluctuations. The rupee has depreciated practically 3% in opposition to the US greenback to date this yr and appreciated 1% in opposition to the euro.