Sensex and Nifty, trade at around 16x FY2021 consensus earnings, which is largely in line with long term average multiples,
Finance Minister Nirmala Sitharaman's addresses over the past three weeks suggest that not all is well, but with an eye on its $5 trillion number, the government is leaving no stone unturned to provide economic pushback.
Sitharaman briefed the media on August 30, after meeting tax officials at Kolkata and assured them wealth creators would not face tax harassment and instead have to be facilitated.
The Finance Minister's measures came amidst concerns over a slowing economy, which hit a six-year low at 5 percent for the quarter ended June.
All sectors seem to be hit hard by subdued demand, but the auto sector is in the midst of one of its worst crisis.
The Reserve Bank of India recently decided to transfer Rs 1.76 lakh crore in dividend and surplus reserve to the government.
The mega-merger of PSU banks is another step to revive demand and boost capital spending.
The Finance Minister told the media that the government is looking at challenges faced by various sectors and is speaking to stakeholders.
"We are continuously engaging with all sectors to assess challenges, formulate responses," Sitharaman said at the press conference in Kolkata.
She also said the revenue department will bring in faceless assessment and randomise the scrutiny process from Vijaya Dashami onwards.
The Nifty gave marginally positive returns since Sitharaman announced a rollback of surcharge on foreign portfolio investors (FPIs). And while much of the pessimism is largely on the back of weak global cues, with stability on the trade war front, the market could rise steadily.
"The market is likely to cheer the truce on the trade war front and an improved geopolitical situation. Markets should steadily crawl up from this deeply oversold zone. The new found love of the government to address concerns of the economy through its weekly press conferences should also lead to some confidence-building in the sentiments," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
"This press conference will be closely watched by market participants as they expect economic boosters. Therefore, we recommend investors to accumulate quality stocks in metals, private and PSU banks for a medium-term perspective as they are highly oversold," he said.
The June quarter earnings failed to lift investor sentiment and hopes of a meaningful revival in corporate earnings in FY20E and FY21E remain dim until growth catches up in the economy.
"The fundamental reason for the bearishness is the lack of growth or rather falling GDP numbers. Earnings growth is a function of GDP growth and therefore, earnings may remain muted toll growth revives and picks up. The consumption and capital expenditure are sluggish and this has led to weak aggregate demand," Dr Joseph Thomas, Head of Research, Emkay Wealth Management told Moneycontrol.
"Only if the government spends and puts purchasing power into the hands of the people we may see some quick recovery in economic fortunes," Thomas said.
Earnings downgrades continue to outpace upgrades and consensus Sensex earnings estimates were downgraded by 2-4 percent for FY20 and FY21.
Valuations have corrected sharply in the broader markets while the benchmark indices, Sensex and Nifty, trade at around 16x FY21 consensus earnings, which is largely in line with long term average multiples, said a Sharekhan report.
Given global uncertainties and near-term challenges in the domestic markets, volatility could continue in the immediate future. In the near term, hopes are pinned on possible policy measures to support the economy and attract foreign investments.
"A stitch in time saves nine’ holds good always. The measures announced by the Finance Minister did improve sentiments. Rollback of super-rich surcharge on FPIs and domestic investors did the trick and a rousing response followed," Dharmesh Kant, Head-Retail Research, at IndiaNivesh Securities told Moneycontrol.
"It was a slew of financial booster for automobiles, MSME’s, corporates, infrastructure, banks, non-banking financial companies and housing finance companies were add-ons. Corrections if any will be bought into," Kant added.
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