Mid-term forecast: Markets lower expectations

With slowdown in earnings, analysts re-rate mid-term forecast for stock market indices.

Sensex, Nifty, bse, nse, sensex today
Titan Company on Friday after market hours reported lower-than-expected results for the fourth quarter ended March 2016. (Photo: Reuters)

On Monday, when the research arm of investment bank UBS cut its Nifty target for December 2015 from the projected 9,600 to 9,200, it came as the first significant re-rating in market expectations by a global brokerage firm after the Narendra Modi-led NDA government came to power.

While the initial trend of earnings growth for the quarter ended March 2015 continues to disappoint market participants, insiders say that many financial houses are in the process of adjusting their expectations and may come out with subdued revised projections.

While UBS maintained on Monday that it remains positive on India and expects the cut in interest rates to surprise pleasantly, it said, “We cut our Nifty target for December 2015 to 9,200 to reflect earnings cuts. The revised target also reflects our view of the growth recovery being slower than expected, as is playing out in quarterly corporate results,” said the report prepared by Gautam Chhaochharia, head of India research at UBS.

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However, that is not a view in isolation. There are many who feel that the earnings growth has been disappointing.

“There has been a slowdown in earnings over the last two quarters because of various reasons and there has been a postponement in materialisation of expectations,” said Pankaj Pandey, head of research at ICICI Securities.

The results for the quarter ended March 2015, announced by 18 companies — part of the BSE 500, including RIL, TCS and Hindustan Zinc — till Monday show that the aggregate net profit for the companies shrunk 3.2 per cent over the last year from Rs 13,783 crore in March 2014 to Rs 13,344 crore in March 2015.

“There was de-growth in earnings for the Nifty 50 companies in the quarter ended December 2014 and it’s looking weak even for the March quarter. While the market expected FY ’15 and FY ’16 earnings for Nifty companies to hit 15 per cent and around 19 per cent respectively, this is set for a downward revision. Hence, financial firms are now doing their adjustments and are in the process of revising their targets,” said the head of a leading financial services firm.

Experts also feel that the next phase of growth in markets will follow earnings growth and that is around two quarters away.
Meanwhile, the benchmark indices at BSE and NSE have taken a beating and over the last five trading sessions, they have fallen by 4.7 and 5.2 per cent respectively.

“Markets have already seen correction based on muted earnings expectations and I don’t think there is too much downside from here.

However, I hope earnings would see a revival in the second quarter of FY ’16,” said Harsha Upadhyaya, CIO, Kotak Mutual Fund.

Earlier, after the BJP got a majority in the 2014 general elections, all major financial firms had revised their Sensex and Nifty targets upwards. While UBS had raised its Nifty target for December 2014 to 8,000, it further revised its target in November 2014 and said that Nifty would hit 9,600 by December 2015.

Citigroup, too, had in December 2014 raised its Nifty target to 9,850 and Sensex target to 33,000 by December 2015. Similarly, Goldman Sachs raised the target for the Nifty index to 9,000 points for September 2015 as against its previous target of 8,600 for June 2015.

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First published on: 22-04-2015 at 08:48 IST