The NSE Nifty 50 dipped 1.1% on Tuesday as US Treasury yields climbed, tightening the risk‑free rate and dampening valuations across the board. Traders noted that market sentiment is still tentative, with global capital flows tightening after the latest ECB rate hikes.
Prateek Nigudkar, Senior Fund Manager at Sriram AMC, said corporate profits are expected to grow 17% to 20% YoY in the July‑September quarter, compared with 15% to 16% in the previous quarter. The forecast aligns with the sector’s trend of steady earnings expansion, though analysts had been wary of a slowdown due to stronger macro fundamentals.
Higher bond yields are the main drag on valuations. As the yield curve steepens, the present value of future earnings falls, compressing price multiples. This environment has led many investors to reassess the risk‑return profile of high‑growth corporates.
Private‑sector banks stand out as a value pocket. Nigudkar highlighted that loan growth and deposits have rebounded, while credit costs remain at decade‑low levels. The sector’s net‑interest margin has eased post‑rate‑hike cycle, making current valuations more reasonable amid the market correction.
Life insurers also look poised for improvement. A shift towards higher‑margin non‑participating and term products, spurred by recent tax changes, could lift profitability. Investors will monitor how these pricing dynamics play against the backdrop of rising input costs.
Looking ahead, the upcoming earnings season will hinge on margin performance. Companies that can pass higher costs to consumers without eroding demand are likely to outperform. Analysts will also track the pace of bond yield normalization for a clearer valuation picture.