Q1FY23 expectations from different sectors in the Indian stock market

India is the sixth-largest economy in the world with a GDP of $3.1 trillion, which is the sixth largest in the world. In FY22, inflation affected the economy, putting pressure on several sectors’ margins. Even a few analysts are projecting that the current economic decline will likely be followed by a future recession. Companies will now release their quarterly financial reports for Q1FY23 as the quarter has come to a close. This will determine the future course
of the different sectors in the stock market, which collectively determines the flow of the entire economy.

Moreover, the same can be tracked down by the movement in various sectors of the stock market. A few stocks have already started showing investors’ sentiments for companies in their respective sectors in the share market by the way of upward or downward movement in stock prices. For example, you can read analysis of the recent 15% up move in a single week in Godrej Consumers Products Limited, which is a listed FMCG stock on Univest.in.

FMCG sector stocks are a likely outperformer in FY23

The fast-moving consumer goods (FMCG) sector in India is the fourth-largest sector of the economy. Because of a spike in palm oil prices following the Russia-Ukraine war and Indonesia’s impromptu export embargo, most FMCG companies listed on the NSE saw a significant fall early in the year, and throughout the quarter, India’s FMCG industry remained underperforming. The recent decreases in commodity prices and the anticipated robust
monsoon are additional encouraging news. The price of crude palm oil futures on international exchanges has dropped by more than 35% in recent weeks due to the restart of Indonesian exports as well as concerns over the health of global demand. Since crude palm oil is an essential raw material, the sharp price decline is advantageous for domestic producers of high-demand consumer goods.

Investors can maintain a positive view on FMCG sector stocks. A few stocks to keep a watch on include Godrej Consumer, Varun Beverages, HUL, Jubilant Food & ITC. Almost all of them are expected to outperform their sectoral indices. Many stocks in this sector have rebounded from their low points and are trading at 52 week highs with the potential to move higher.

NIFTY METAL Index: Steel Sector suffers due to the export tax imposed on them

According to figures provided by the World Steel Association, China continued to be the world’s top producer of crude steel in 2022, followed by India, Japan, and the USA. Recently, in the month of May, the government imposed a 15% export tax on steel in a bid to increase supply for domestic consumer industries and tame inflation. That’s why Nifty Metal Stocks of domestic metal producers have been hurt by the decline in metal prices globally.

Analysts at Nomura have noted that due to weak economic demand and the prospect of more price declines, “end-user sectors for steel, both in the domestic and in the export markets, remain on the sidelines.” Stocks to watch include Vedanta, Tata Steel, and Jindal Steel, as almost all of them have seen a sharp fall in their market prices and the same is expected to continue till commodity prices settle. The metal sector is likely to be an underperformer in FY23.

Cement Sector : Adani Group’s entry into the sector has changed its dynamics

India, which accounts for approximately 7% of the world’s installed capacity, is the second-largest cement producer in the world. ICICI Securities stated that for Q1FY23, the cement industry may have a low base volume increase of 16–17% YoY. “The support mainly came from the government as the capex by the Union Government grew by a strong 70.1% in April-May 2022,” said Sunil Kumar Sinha, principal economist, India Ratings.

Due to growing competition in the cement industry after the entry of Adani into the cement sector through the acquisition of Holcim’s India stake in ACC & Ambuja Cements, the other players have been forced to undertake aggressive capex plans with the goal of increasing their total manufacturing capacities in coming years. This was the main reason for the fall in the share price of UltaTech cement. Key stocks to watch in this sector include UltraTech
Cement, Shree Cements, Ambuja & ACC. In the Q1FY23 they are expected to rebound and will likely outperform their peers.

Chemicals Sector – Likely to see a rebound in Q1FY23

India’s chemical sector, which accounts for 7% of the nation’s GDP, is the third largest in Asia and the sixth largest in the world. According to JM Financial, the Q1FY23 is the first full quarter of elevated crude prices and ongoing supply chain issues for chemical businesses. The brokerage claimed that managing volumes and margins at the same time would have been difficult for the majority of chemical companies.

According to JM Financial, SRF will continue to profit from the high price of ref gas, while Navin will gain from the slow but steady inflow of HPP and specialised chemical contracts. Some of the stocks to watch include SRF, PI Industries, Fine Organics,and Gujarat Fluoro. Most of them have recently experienced a downfall in their stock prices, so investors can consider this an opportunity to buy them at discounted prices as they are expected to
outperform in the long run. A majority of these companies derive a large part of revenues from exports, and a weak rupee is expected to aid the margins of these companies in Q1FY23.

Pharmaceutical Sector: Rising sales to US markets hold the key to outperformance of this sector

The pharmaceutical sector’s shares in India rank third globally in terms of volume and fourteenth globally in terms of value. According to Nirmal Bang Institutional Equities, pharmaceutical sector shares will perform subduedly in the domestic market in the first quarter of FY23 due to a greater base. According to Nirmal Bang, firms with a more
pronounced long-term presence, such as JB Chemicals, Sun Pharma, and Lupin, ought to fare significantly better.

Many of the pharma stocks have lost value over the last year due to weak performance in the US markets. If these companies can rebound in those markets, supported by a weak rupee, this sector has the potential to become an outperformer. So, key stocks to watch include Sun Pharma, Cipla, Dr. Reddy’s Labs, and Lupin.

IT Sector – Q1FY23 may be a subdued quarter in an uncertain environment

The GoI’s Economic Survey 2021–22 estimates that the IT industry contributed 9.2% of India’s GDP in FY2022. As a result of the sector’s recent severe downturn, investors have high hopes for it in Q1FY23. The NIFTY IT index has dropped more than 26.33%t in the past six months, and many major IT businesses have reached their 52-week low.

Due to the difficult financial conditions throughout the world, brokerages projected in their preview report on the whole IT industry that the Q1FY23, may not be a rather robust growth quarter for Indian IT sector companies. Market-watching analysts also noted that in their most recent statements, top-tier and mid-cap IT sector companies’ managements reinforced the robust demand environment brought on by cloud and digital transformation. But many analysts now predict that any improvement in demand will start in Q1FY23. In addition, it is important to monitor the growing margin pressure on IT firms brought on by high attrition rates, which could have a negative impact on them in the medium to short term.

TCS would be the first IT major to release their Q1FY23 financials, Other stocks to watch include, Infosys, Tech Mahindra, Wipro & L&T Technologies.

The Automobile sector- On the road to recovery in Q1FY23

According to projections from 2021, India’s automotive industry will rank fourth in the world with a current market value of more than $ 100 billion. For Indian automakers, the June quarter (Q1FY23) will mark the return to normalcy after a two-year absence. Margin compression is likely as a result of rising commodity prices for items. Price increases by businesses may somewhat counterbalance this. The majority of automakers’ Q1 gross margins are predicted by Kotak Institutional Equities to decline by 50 to 80 basis points (bps) sequentially. While the wedding season in the previous quarter generated a volume increase in the two-wheeler market, which may have helped revenues.

Additionally, the forecast for margins is improving. The price drop for steel and aluminum is anticipated to result in higher margins in Q2FY23. Therefore, investors can expect auto stocks that could outperform in FY23 to include TVS, Maruti Suzuki, Hero MotoCorp, Eicher Motors, and M&M. Moreover, a recent positive update from M&M is that they are launching the upgraded version of their most successful SUV, the Scorpio, and their robust aim to lead electric SUV sales with a new EV unit.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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