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Last Updated : Nov 11, 2019 10:42 AM IST | Source: Moneycontrol.com

Bull run intact? Experts say Moody's India downgrade may only have short-term implications

The Sensex fell more than 300 points or 0.8 percent on November 8, largely due to weak global sentiments and negative economic outlook on India by Moody’s.

Representative Image
Representative Image

Global rating agency Moody’s Investors Service on November 7 changed its credit outlook on India to negative from stable, citing increasing risks to growth.

The economy grew at the rate of 5 percent year-on-year in the quarter ended June 2019, notching the slowest growth rate since 2013, as consumer demand and government spending slowed amid weak global cues.

The downgrade can take a toll on Dalal Street in the short-term, but experts remained optimistic on the market in the medium-term citing the proactive approach by the government in dealing with headwinds.

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Since August 2019, the government has taken several steps to keep the economy afloat including the 10 percent corporate tax cut and sector-specific measures.

Experts feel that these measures will start showing positive results soon. This will not only improve the earnings on India Inc but will also revive economic growth, they added.

As a result, the market is expected to continue on its upward march with intermittent correction in coming quarters.

"Owing to lower tax collection there surely is a valid fear for higher fiscal deficit though if large divestment comes through it will help the government tide over this short-term shortfall in revenue. If bond yield hardens and rupee falls in the short term due to this outlook downgrade, then Nifty too can go for some correction. But the medium-term outlook remains very positive for Indian equities," Shailendra Kumar, Chief Investment Officer, Narnolia Financial Advisors told Moneycontrol.

Ajit Mishra, VP - Research, Religare Broking also believes Moody's negative outlook on India could impact the street sentiment in the near term, but the medium-term outlook appears positive.

"Nonetheless, going forward we have an optimistic view on the Indian markets led by positive global cues (US-China trade deal) and government’s increased focus on reviving the economy. Though the announcements made by the government could take a while for it to yield desired results," he said.

Sameer Kalra, Founder & President (Research) at Target Investing, feels that irrespective of Moody's downgrade, small correction is likely as the current run has been ahead of fundamentals.

The Sensex fell more than 300 points or 0.8 percent on November 8, largely due to weak global sentiments and negative economic outlook on India by Moody’s.

The fall was after more than 4 percent rally since the beginning of Diwali, so this kind of correction can't change the market mood, experts feel and hence they retained their target.

"We don’t think that it is going to completely change the performance of equity market since it is based on outdated factors which are already digested by the market," Vinod Nair, Head of Research, Geojit Financial Services told Moneycontrol.

According to him, the downgrade may impact the bond market in the short-term and if the fiscal issue gets expanded it can spread to the equity market in the future.

But the probability of the same looks limited for the market as income from divestment, spectrum sales & dividends will likely fix the fiscal deficit gap, he said, adding that the key concern for the market is the premium valuation of large caps & blue chip stocks.

Vinod Nair maintained one year forward target of 12,600 for Nifty50.

"It is a market where stock picking and SIP mode will work better than timing entry and exit," Sameer Kalra said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Nov 11, 2019 10:37 am
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