Moneycontrol Bureau
It almost seemed like a doomsday after the market crashed 2 percent at opening on Monday. Just a few days ahead of auspicious Diwali when mood is generally positive and celebratory, the Sensex plunged over 600 points intraday as investors felt Acche Din slipping through their fingers after BJP’s defeat in Bihar.
So, is it all doom and gloom for market now?
Analysts feel that the Indian growth story is still intact and potential over-reaction by equity investors can be used as a buying opportunity. Thomas Rookmaaker, Director in Fitch Ratings’ Asia-Pacific Sovereigns says the election results are not likely to impact decisions by foreign investors in other states and a big win for the BJP in Bihar would not have led to sufficient support in the Rajya Sabha anytime soon anyway. Hence he does not expect major implications on the economic front.
“The BJP’s defeat in the Bihar state assembly election does not change our view on the medium-term economic outlook for India. With continued opposition, the government will likely continue to try and pass legislation via ad hoc political deals, and if that does not work it may continue to resort to implementation of reforms at the state level. While the opposition to some big ticket reforms, the government has gradually rolled out a large number of initiatives and there is no indication it would now change course,” he says in a note.
Credit Suisse also agrees that the impact on market will be short-lived while economic recovery and possible cabinet reshuffle may be next catalysts for the market. Few analysts even feel this may be actually good for the market. Reasons? According to CLSA, Bihar loss may push the government to accelerate delivery of services but a lot is now depended on how this defeat is perceived by Modi as defeat is clearly a setback for investor sentiment.
Though Bharat Iyer, JPMorgan expects that equity markets could initially be somewhat nervous on the back of the Bihar state election result, he says medium-term trend will be determined by how economic policy evolves. The financial markets will be closely scrutinising the impact of these results on policy making if any through to the next Budget session of Parliament, he adds.However, the market needs to be more worried about weak earnings feel analysts. Barring a few sectors, most have exhibited a slowdown in September quarter earnings. CNBC-TV18 consultant Udayan Mukherjee says he wouldn't be surprised if Nifty earnings are cut by 8-10 percent by the end of the earnings season. "Earnings is the reason why the market cannot climb higher. 8000-8100 looks difficult to cross and lows may be tested," he says.Saurabh Mukherjea, CEO of institutional equities at Ambit Capital agrees that the bigger story remains the sheer difficulty of corporate earnings to move with no improvement in last six quarters now. “The old notion of Nifty earnings growth or Sensex earnings growth will not be very rewarding. There isn't any corporate earnings growth at the index level in last six quarter,” he adds. Arvind Sanger, managing partner of Geosphere Capital Management says 5-10 percent pullback in the index is very good opportunity to buy some of the which are not dependent on whether Modi's popularity takes a hit or not. Sanger adds that earnings have been disappointing in the last several quarters continues to remain a big overhang.Follow @NasrinzStory
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