The fall of both the Sensex and Nifty indexes over the last one month has been majorly due to concerns over corporate earnings, general slowdown in economic growth, exports and also in consumption.
Nomura has increased its March 2020 target for Nifty50 to 12,900 as it expects the market to get valuation support from lower bond yields. Steps taken by the government and the Reserve Bank of India (RBI) to infuse liquidity in NBFCs should allay concerns over escalation and a deeper economic slowdown, it said.
The fall of both the Sensex and Nifty indexes over the last one month has been majorly due to concerns over corporate earnings, general slowdown in economic growth, exports and also in consumption. Additionally, India is the only market in the world to yield negative returns over the last one month.
Despite the recent carnage in the markets, Saion Mukherjee, head of India equity research at Nomura, is constructive on markets from one-year perspective. “The quantum of issues that markets dealt with earlier were bigger issues, but now the issues are smaller,” he said.
According to Nomura, the NBFC crisis and its repercussions were the major factors making the markets nervous before the Budget and after the elections.
Nomura has re-rated Indian markets, saying that softening of bond yields and steps taken to tackle the crisis at NBFCs will help valuations. The government will infuse liquidity into NBFCs and this should allay concerns on escalation and a deeper economic slowdown. If the Budget proposal of increasing shareholding to 35% from 25% is approved, the markets would see an increase in the weighting of stocks in benchmark indices, ultimately attracting greater foreign inflows of capital, it said.
“We are not falling from the cliff, instead we are going to the base and from there we will recover. In September or October, we could sense the recovery. Towards the latter half of the year, we will see recovery of broader markets,” Mukherjee said.
According to him, there is a gradual recovery and a broader fall in cost of capital and this lays a foundation for a good equity market from a one to two year perspective. “As we approach next few quarters, the worst in terms of growth would be behind us and things should start looking better from there on,” he said.
Nomura’s Nifty target is 12,900 by March 2020. In the last four-five years, corporate earnings have been quite sluggish. “It’s a gradual recovery. If there is a GDP slowdown further, there is a problem,” warns Mukherjee.
The brokerage is overweight on financials, infrastructure, healthcare and pharmaceuticals, while it’s underweight on auto and consumer.
Nomura further said infrastructure- and exports-led companies could replace the consumer theme in coming years.