China rout: Can India emerge relatively unscathed?

China's great wall of worry continues to be a major pain point for markets globally — India included. While many experts continue to believe that the Indian market is relatively safe, the question lies in the definition of 'relative'. Can India emerge 'relatively' unscathed from a China rout? And while there have been many debates on whether it is now time for the 'I' to get out of the Brics, the fact remains it is still very much a part of it. Vaibhav Sanghavi, Managing Director at Ambit Investment Advisory, does not think India can do well under the circumstances. To the extent, the company may even look at revising its FY17 Nifty target. "We may have to revise the 11000 Nifty target (by FY17) if earnings recovery continues to remain elusive," he told moneycontrol.com in a telephonic interview. Ambit was expecting earnings to grow by 20 percent in FY17 and 12 percent in FY16. "So going by sheer earnings growth, even without a massive re-rating in the markets, cumulatively we will grow 32-33 percent in two years, which takes the index number from 8500 to 11000," he had said in an earlier interview.
Meanwhile, Manishi Raychaudhuri of BNP Paribas, told CNBC-TV18 that he has a Sensex target of about 29,400 by the end of 2016 which is about 15-16 percent higher than the current levels and is predicated largely on earnings growth. "For fiscal 2017, we think Sensex earnings growth would be in the early teens, maybe around 12-14 percent," he said in a recent interview.

But not just the week gone by, emerging markets have been seeing outflows for the last 9-10 weeks because of a variety of reasons, chief among them may be the fall in commodity prices. Sanghavi says yuan devaluation and the fall in commodity prices were the main triggers for the market fall. "We need to understand why the market is falling. It is because of yuan devaluation, weakness in commodity prices globally and the fact that emerging markets flows have been negative. Also, as far as earnings go, it doesn't seem that there is anything positive there," he explains.

Noted market commentator Shankar Sharma of First Global too told CNBC-TV18 that the state of global stock markets in January 2016 is eerily resembling the one witnessed in January 2008 — when equity markets topped out after a multi-year bull run and began to crash and burn. Though he quickly clarified that he is not making a case for a 50 percent fall in market. "All I am saying is: directionally, and the speed of [an expected down] move will be very similar to what we saw in 2008," he explained.  Going forward too, it is difficult to say whether any of these variables are likely to change anytime soon. "We are yet to see any stabilisation in global currencies and commodities, coupled with tepid earnings this quarter," says Sanghavi. He, however, advises investors to buy largecap stocks now since the gap between midcaps and largecaps has narrowed to a great extent.

Sanghavi says the sell-off in the Chinese market is likely to continue and while the regulators are trying to solve the problem, too much interference also sends out a bad signal to the investor community.