Nifty valuations look stretched amid EPS downgrades: Jefferies | Economic Times

Mumbai: Brokerage Jefferies said share valuations appear stretched against the backdrop of the rally in the Nifty and the unrelenting earnings downgrades.With Nifty trading at 19.7 times forward earnings, valuations are similar to the peak of January 2008 when the global financial crisis erupted, the firm said. Jefferies prefers stocks with valuation comfort, with its picks being IndusInd Bank, NTPC, ITC, HDFC Bank, Larsen & Toubro and HCL Technologies.Nifty has gained 44 per cent from the March 24 low of 7,511.10. The index ended 107.70 points, or 1 per cent, higher at 10813.45 on Thursday.Meanwhile, Jefferies believes that the trend of downgrading earnings per share (EPS) doesn’t make it a high conviction rally.“The earning downgrades have been sharp with consensus cutting FY21/22 Nifty EPS by 28 per cent/14 per cent since February 2020,” said Jefferies in a note.76884640Jefferies said bottom-up numbers suggest another 10 per cent earnings cut, likely triggered by forthcoming June quarter results.The worsening trend in domestic flows is also a concern, with AMFI data showing that equity mutual funds saw a net outflow of Rs 1,800 crore for June — making it only the second time in the last six years that equity inflows have turned negative.Better-than-expected economic data and improving global risk appetite implies that any market correction will be short-lived but the conviction in the current rally will increase if indicators around the construction sector and GST collections will stay strong, it said.“If cement demand, other construction activity indicators and other broad-based indicators viz., GST collections, fuel demand, etc., stay strong July/August as well, the conviction in the rally will increase,” said Jefferies.