All’s well that ends, the market seems to be saying, looking at the runaway rally over the past three sessions. On the day of the election results, investors fled fancied themes like capex and PSU and sought refuge in FMCG names. The mood has improved significantly since, and investors are now loading up on both defensive as well as market-fancied themes. The obsession with a stable government for the next five years means the earnings story has taken a backseat. Few dispute that valuations are expensive and that being the case, companies have to deliver on earnings for these prices to sustain. The picture may not be gloomy, but is not all that rosy either.

Earnings snapshot:

From Nuvama’s assessment of FY24 earnings of BSE 500:

“Overall, while FY24 profit growth was healthy, exit is weak(fourth quarter numbers did not grow as fast). With tailwinds of lower input prices, BFSI credit costs, and pent-up demand behind, top-line, and profit growth are likely to converge. With consumption and exports in the slow lane, top-line acceleration may be gradual, potentially pulling down profits.”

Caution!!

Nuvama has warned of downgrades in Nifty companies' earnings this year. Also, earnings of small and midcaps earnings slowed to 14 percent in Q4 (versus 20 percent-plus for the first nine months). The profit growth is not much different from large caps. So, much depends on how strong the demand is.

Cushion

If there is a risk of renewed share price declines, the one major positive is that foreign investors will view any significant correction as an opportunity to buy, says Jefferies. That is because a combination of India’s outperformance in recent quarters and high valuations has led to most emerging markets' dedicated funds being underweight on India.

Tata Motors (Rs 970, 3.44%)

British subsidiary, JLR’s May sales are up 29 percent year-on-year

Bull argument: Net automotive debt at the lowest level in six years. Big product launches in India coming in the second half of this year.

Bear argument: The Company expects sluggish passenger vehicle sales in the initial part of FY25. Nomura says JLR could face a demand risk.

Dabur India (Rs 612.05, 2.5%)

Hit a 52-week high on Friday, and has gained 16 percent during the week.

Bull argument: Ayurvedic focus, strong domestic presence, and international operations help mitigate market risks. Strong distribution network, product innovation, and emphasis on health portfolio to drive growth.

Bear argument: FMCG stocks in general riding the ‘flight-to-safety’ wave on the initial panic reaction to the general election results. The market heavily bet on rural recovery on expectations of increased welfare spending by government. That may or may not play out.

InterGlobe Aviation (Rs 4,374.7, 1.7%)

Kotak Institutional Equities has raised the target price to Rs 5,700

Bull argument: Growing faster than competition, expanding fleet. Fuel prices have been stable for a while and passenger traffic is growing steadily.

Bear argument: Stock has run up 80 percent over the last six months. Not as under-owned by institutional investors as it was till a few quarters back. Period stake sale by erstwhile promoter Gangwal group an overhang.

Wipro (Rs 484, 5%)

Bagged a $500-million deal with a leading US communication service provider

Bear argument: Long-term growth has consistently lagged peers—tepid guidance for revenue growth in FY25.

Bull argument: Leadership change may help overhaul the firm. Recent deal wins from Nokia and another large US communication provider raises hopes of more such order wins.