Analysts revise Sensex, Nifty target as demonetisation hits biz

As the Indian market struggles to stay afloat amid weakness and cash shortage due to demonetisation, analysts think there is more downside on the cards. Few brokerage firms have also slashed target price of Sensex and Nifty. Ambit has scrapped its March 2017 Sensex target of 29500 and has set March 2018 Sensex target of 29000 stating that demonetisation will paralyse economic activity in the short term. The brokerage firm says that the Sensex earnings estimates face sharp revision downwards and FY17 Sensex earnings per share (EPS) is likely to be revised downwards. "Current Ambit FY18 Sensex EPS estimate of Rs 1782 (implying 19 percent earnings growth over FY17) and consensus estimate of Rs 1801 (implying 23 percent earnings growth over FY17) are also at risk. We expect both these numbers- Ambit’s and consensus-to be revised downwards over the course of next year," it adds.Both the Sensex and Nifty fell sharply 6.3 and 6.7 percent respectively from November 8 while midcaps index is also down around 6 percent. Agrees Jefferies that the government’s demonetisation drive brings in big challenges to growth in FY17 and FY18 for India. The global investment banking firm has also reset Nifty target at 7500.It expects index earnings to grow 8 percent in FY17E and 15 percent in FY18. Meanwhile, Ajay Srivastava of Dimensions Consulting warns that the Indian market has already entered the bear market. He adds that margins are likely to shrink that will lead to a downgrade in valuations of companies.

However, Citi has kept its Sensex target at 30000 for Sept 2017 though it believes that the market will remain range bound near term but remains constructive in the medium term. “FY17 GDP growth is expected to come down to 7.2 percent.”The market is also starring at another bigger risk as rupee tumbled to a record low today. The Indian currency touched record low of 68.86 in intraday trade on Thursday, crossing its earlier low of 68.85, tested on August 28, 2013. The rupee has plunged by 3.6 percent from Donald Trump's victory in the US Presidential polls on account of capital outflows after rising US bond yields and a strong dollar.January, February and November were the weakest months for rupee in 2016, losing over 4 percent in this year.

Though analysts say the rupee may not depreciate further, Indian companies may see a weak third quarter weighed down by demonetisation and cash crunch in the economy. Motilal Oswal feels that with uncertainty around liquidity recalibration, "there were obvious downside risks to 2016-17 earnings estimates".

"We believe autos, FMCG, retail, consumer durables, mid-caps, cement, telecom and NBFCs could see earnings downgrades for 2016-17, it says.