New Delhi: For legendary investor Warren Buffett, interest rates are nothing but gravity to stock prices – the higher the rate, the greater the downward pull. According to domestic brokerage , the impact of interest rates can, however, lead to over-reaction in both ways unlike the precise effect of gravity.
“Despite the ‘easing of nerves’ on interest rates, we believe we are still in a QT (quantitative tightening) cycle, hence it is less likely that equity valuations will yield less than five per cent, or trade above 20x on a one-year forward basis (currently 19.2x). The rising geopolitical tensions between US and China bring in additional uncertainty for the capital markets,” the brokerage said in a report.
Under such a scenario, ICICI Securities prefers themes related to improving credit growth, investment rate and discretionary consumption. Its top picks include SBI,
, , L&T, , , , , , , , Brigade, , , , and Centuryply.
Stating that the early high-frequency growth indicators for Q2FY23 continue to be robust, it said that the profit, credit and capex cycles continue to expand.
The profit cycle continues its upturn in the June quarter both in terms of growth (20% YoY) as well as expectations (beats and misses equally poised). The credit cycle, too, has been expanding (mid-teens growth) with NPAs under control and corporate balance sheets largely deleveraged.
“The above trends indicate that the key cycles which matter for equities are favourably placed. The key cycles are the ones pertaining to corporate profits, credit growth, and investment rate. Opening up benefits in the suppressed physical discretionary consumption segments of travel, entertainment, leisure, etc. will continue into the festive season during Q2-Q3FY23,” the brokerage said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)