India’s stock surge only a bear market rally, say global majors

[ad_1]

Global financial majors believe the recent surge in the Indian stock market is only a ‘bear market rally’ as concerns continue on the rising number of COVID-19 cases leading to a significant contraction in economic activity, thereby causing a huge dent in corporate earnings.

Goldman Sachs, in its latest report, has lowered India’s rating to ‘market weight’ with a Nifty target of 9,600 by June 2021.

“We view the current rally as a bear market rally, which are common in history,” Goldman Sachs stated in a report released on Thursday.

Domestic risks

“While global tail risks may have reduced, we see significant domestic risks in India. The spread of the virus has escalated sharply in recent weeks. The extension of the nationwide shutdown for another three weeks and social distancing measures are likely to cause significant contraction in economic activity,” it said, highlighting that fiscal easing in India had been limited so far compared to many other regional and global economies, though it said it expected more easing.

Goldman Sachs added that earnings estimates were likely to see a steep fall and, as market valuations are still looking ‘optimistic,’ it seemed early to say that the equity market had discounted all the negatives. Similarly, UBS has estimated a Nifty target of 10,000 by March 2021 with an upside and downside target of 11,500 and 6,000, respectively.

This assumes significance since this is a huge drop since December, when UBS had estimated a base case target of 12,300 for the Nifty by June 2020. “We believe Q4 FY20 earnings will take a big hit due to COVID-19-driven mobility restrictions. Consensus expects headline Nifty earnings to grow 3%, while we expect a sharp decline of 12%,” a UBS report said.

“However, these numbers may not matter for markets, and investors are likely to focus more on job losses/furloughs, as these may provide key insights for the shape/timing of the recovery and evolution afterwards, commentary on supply chain disruptions and recovery capabilities and commentary on financials’ asset quality and overall liquidity conditions,” it said.

You have reached your limit for free articles this month.

Register to The Hindu for free and get unlimited access for 30 days.

Subscription Benefits Include

Today’s Paper

Find mobile-friendly version of articles from the day’s newspaper in one easy-to-read list.

Unlimited Access

Enjoy reading as many articles as you wish without any limitations.

Personalised recommendations

A select list of articles that match your interests and tastes.

Faster pages

Move smoothly between articles as our pages load instantly.

Dashboard

A one-stop-shop for seeing the latest updates, and managing your preferences.

Briefing

We brief you on the latest and most important developments, three times a day.

Not convinced? Know why you should pay for news.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

[ad_2]

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *