Mumbai: The return on equity (RoEs) for the Nifty 50 index has recently surged above the 15% threshold, marking a milestone after a decade. According to an estimate by the brokerage firm ICICI Securities, it is poised to further expand to 17% by FY25, which signifies a clear entry into the value-creation zone, propelled by the favourable demand environment for capital-intensive and cyclical stocks.
Nifty RoE hovered around 15% in 2014, declined to around 12% in 2022, and recovered to around 16% since then.
“Stocks that are likely to improve their RoEs over FY23 to FY25 and transition into value-creation zone include capital intensive and cyclical sectors such as auto, capital goods, infrastructure, utilities, telecom, commodities and financials,” said Vinod Karki, equity strategist, ICICI Securities in a report.”The RoE trajectory provides a sense of ‘deja vu’ of what happened in the pre-global financial crises era between 2003-2007 when stocks within capital-intensive and cyclical sectors like L&T, BHEL, Bharti, NTPC, Hindalco, Mahindra & Mahindra, ACC, Reliance and DLF transitioned from sub-14% level RoE to value creation zone of RoE greater than 15%,” he added.
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