The bears are on the prowl again. With global markets on the boil, Indian equities are feeling the jitters and brokerages are busy revisiting their Sensex or Nifty targets they had set only a few months ago. The investment fraternity, though, is still hoping that our market will hold out amid the global gloom.
?The global growth outlook has turned a little bearish,? said Nandkumar Surti, CIO at JP Morgan MF. ?However, our markets have performed better than most other Asian markets in the past few days despite some really bad news coming in from the US.?
Ambit Capital?s equity head Saurabh Mukherjea says that the Sensex will touch 16,000 levels in the next couple of months. ?Whenever the global economy has got into a crisis, Indian markets have tended to trade below 15 times forward earnings,? he said.
According to UR Bhat, managing director of Dalton Capital Advisors (India), some earnings downgrades are likely after the full impact of the June quarter results are accounted for. ?The market may have to settle for a slightly lower earnings growth,? he said.
That said, market participants, including Bhat, concede that valuations have become quite attractive at this point in time. The Indian market is currently trading at roughly 14.5 times its FY12 earnings and about 12 times FY13 earnings.
The future though is still very much uncertain. While the Fed?s policy to keep interest rates near zero levels for a while longer might help, investors will have to keep a close eye on Europe.
?Hopefully, the contagion of Europe?s sovereign debt will be contained. There is already talk of France getting downgraded; if that comes about it is likely to result in further shocks to the global economy,? said Bhat.
The uncertain global situation will almost certainly impact FII inflows into India. According to Bhat, while the Indian equity market seems to be trading in the fair value zone, the diminishing risk appetite might compel FIIs to take flight from emerging markets. ?Risk appetite plays a big role in deciding where the FIIs invest. With all that?s been happening in the US, foreign investors are unlikely to be willing to take that extra risk to invest in emerging markets such as India,? Bhat said.
The broking community is also worried that the current turmoil may push retail investors further into a shell.
According to Surti, retail investors should look at systematic investment plans to tide over the current volatility.
Mukherjea believes that conservative investors should stick to defensive bets such as FMCG, pharma and consumer durables. However, those with a risk appetite could take an exposure to banking, power, infra and auto scrips, he added.