Vinod Bhat's Market Pulse - Mar 9, 2023
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Global markets are now focused more on “how high” rather than “how fast” and are pricing in peak Fed rate of 5.65% by Sep. Market direction in the near term will depend on upcoming US jobs and inflation data.
In a sign of the market resilience, S&P 500 currently still trades at 17.5x forward P/E, marginally higher than its 10-year average multiple of 17.2x.
This is not solely due to elevated valuations of the large technology companies. In fact, large cap Consumer Staples, Health Care, Materials, and Industrials all have higher current PE multiples than their 10-year averages.
In India too, Nifty forward P/E is close to its 10-yr average of 18x. However, sectors with global exposure continue to face headwinds while domestic focused sectors seem better placed.
Rising interest rates would be a drag on valuations of Technology sector even as quarterly results and management commentary of global IT Services companies indicates robust deal wins, cautious near-term revenue growth outlook, and scope for margin expansion.
Global chemicals players have reported muted results impacted by lower volumes owing to demand weakness and inventory destocking. However, product pricing remained resilient as companies passed on raw material inflation and high energy costs.