Nomura lowers Nifty target, Jefferies cuts its India exposure

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Published: August 24, 2019 1:39:53 AM

Nomura on August 22 cut its March 2020 target for Nifty to 11,800 from 12,900, citing a slower-than-expected earnings growth.

Nomura on August 22 cut its March 2020 target for Nifty to 11,800 from 12,900, citing a slower-than-expected earnings growth.

Foreign investors have turned jittery about India as the first-quarter earnings disappointed and developments in Kashmir remained tense.
While Nomura cut its Nifty target for March 2020 to 11,800 on Thursday, celebrated strategist at Jefferies, Chris Wood, in his note Greed & Fear, wrote that he had cut his exposure to India by one percentage point on account of the surprise move by the Narendra Modi government to change the constitutional status of Jammu and Kashmir and the ongoing economic slowdown situation.

Earnings estimates have been slashed further after a poor showing by corporate India in the first quarter of FY19. Nomura on August 22 cut its March 2020 target for Nifty to 11,800 from 12,900, citing a slower-than-expected earnings growth.

The Japanese investment bank expects Nifty earnings to grow by 14% in FY20 and 19% in FY21 and it does not rule out the possibility of a further cut in earnings during the course of the year.

Weak sales reported by the companies in the first quarter are reflective of a slowdown in the domestic economy.
According to Nomura, net sales growth (ex-financials) came in at 7% year-on-year in Q1FY20, the weakest rate in the past 11 quarters. Its bottoms up analysis shows that 36 companies have reported that aggregate revenues have grown at 5.2% year-on-year, which is the slowest in 13 quarters. These 36 companies are consumer companies geared towards domestic consumption. While the list included autos, it excluded Tata Motors, consumer durables and FMCG.

Meanwhile, Wood said that the Kashmir aggravation has added an additional negative, assuming the security situation will now get significantly worse. Developments in Kashmir have so far proved more negative for the already bombed-out Pakistan market, where daily trading volume is averaging only $34 million so far this year, than for India.

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