Nifty50 may surge 18% on back of earnings growth in Financials, Oil & Gas and Auto in FY23, says Motilal Oswal; cites these reasons

The benchmark index Nifty50 is likely to surge by 18 per cent in FY23, mainly led by Banking, Financial Service and Insurance (BFSI), Oil & Gas, and Auto sector, after two healthy years of earnings growth, despite the COVID-19 pandemic, a domestic brokerage Motilal Oswal said in its Q1 preview report. 

The brokerage expects the results of the first quarter in the financial year 2022-23 would grow by 21 per cent, it added that the key drivers would be BFSI, Oil & Gas, and Auto.

a) BFSI – We expect Private Banks to report a PPOP/PAT growth of ~8%/40% YoY in 1QFY23. Earnings for PSBs will remain muted. NBFCs will see a steady quarter, despite seasonality.  

b) O&G – We expect our coverage universe to report a PAT growth of 17% YoY. Excluding OMCs, it will be up 132% YoY, due to higher refining margins.  

c) Autos – After the last three-quarter of a YoY decline in EBITDA margin, we expect a YoY improvement in margins and a 7.7x expansion in profit on a low base. 

The brokerage maintains an Overweight stance on BFSI, IT, and Consumers, it raised Auto to an Overweight stance given the healthy demand, moderating commodity costs, and improving supply scenario, and hence added Maruti Suzuki and Motherson Sumi back to its model portfolio. 

Raising weightage in Consumer. it re-introduces ITC by upgrading to a Buy stance as the company is expected to post a 14% earnings CAGR over FY22-24 v/s 5% over FY17-22. It is trading at reasonable valuations (21x FY23E EPS) and at a higher dividend yield (4%).  

In Financials, Motilal Oswal raised weights in ICICI Bank, given the attractive valuations, and added SBI Life to its model portfolio, as it is seeing strong traction in premium growth across segments. 

The brokerage said that we do see some earnings downside risks in the near term as the delayed impact of higher and sticky inflation manifests itself in a pullback in consumption. 

Despite a multitude of headwinds – adverse macros, rising rates, tightening liquidity, and volatile commodity costs, the Nifty has outperformed global markets year to date.