The Modi-led government which will complete the first year of its second term on May 30 got a muted response from the analyst community in terms of reforms that they initiated to push India on a growth path, a poll conducted by Moneycontrol of 13 analysts shows.
We pitched questions to some 13 experts who are head of research, fund managers, as well as investment officers in various brokerage firms.
As many as 54 percent of the experts polled by Moneycontrol gave a rating of '3' out of '5' (5 being the best) to the reforms initiated by the Modi government in the last one year, especially amid the COVID-19 outbreak.
“The first year of Modi Govt 2.0 has been quite eventful. The government tried its best to stimulate the domestic economy amidst the slowing global economic environment. The government took the historic decision to reduce the corporate tax rate which can help increase India’s economic growth in the long run,” Ajay Menon, CEO, Broking and Distribution, Motilal Oswal Financial Services Ltd told Moneycontrol.
“However, the last two months were marred by the COVID-19 pandemic impacting social as well as economic life. The announcements made by the government in the Union Budget and the recent economic stimulus package were lower than the market expectations,” he said.
Menon further added that it appears that these measures may not provide a direct and immediate boost to demand, thus impacting the country’s economic growth in the near term.
As many as 38 percent of the experts gave '4' rating to the reform measures introduced by the Modi Govt. 2.0 in the first year. Experts feel that the reforms are good and a step in the right direction but it might not reinvigorate investment in the near term but will benefit India in the long term.
“Many of the recent measures announced by the Finance Minister are structural reforms which will benefit many sectors in the next few years,” Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Moneycontrol.
“The recently announced reforms in areas like agriculture, coal mining, electricity and privatisation of PSUs are bold but may fall short in delivering till their core problems are not resolved,” he said.
Where are markets headed?
The Indian market has fallen over 23 percent since May 30. And, the majority of the fall happened in the last 3-4 months thanks to the outbreak of COVID-19 which pushed Sensex and Nifty in a bear market, but small & midcaps have been in bear markets for the past 2 years.
As many as 54 percent of the experts polled by Moneycontrol feel that the S&P BSE Sensex could trade in the range of 35,000-40,000 which translates into an upside of 14-30 percent from May 26 closing level of 30,609.
About 31 percent of the analyst feel that the markets are likely to remain flat and move in a range of 30,000-35,000 in the next one year.
About 7 percent feel that we could see a record high above 43,000 while the remaining 8 percent are bearish and see the index trading below 30,000 in the next one year.
As many as 38 percent of the respondents feel that the Nifty is likely to trade in the range of 11,000-12,000 which translates in an upside of 20-30 percent from May 26 closing price of 9,029.
The same percentage of the respondents see the index could well trade in the range of 10,000-11000 levels. 15 percent are of the view that the index could fall below 10,000 and the remaining 8 percent are bullish and see Nifty hitting a record high above 12,400 levels.
Where should one invest?
Investors have lost Rs 18 lakh crore in terms of market capitalisation in the first year of Modi government 2.0. The average market capitalisation of the BSE-listed companies fell from Rs 154.43 lakh crore as on May 30 2019 to Rs 121.60 lakh crore as on May 26, 2020.
The broader markets (small & midcaps) took the worst beating.
Experts feel that the next one year will remain challenging due to COVID-19 disruptions and it is best if investors stay with large caps or large & midcap stocks.
As many as 54 percent of the experts polled by Moneycontrol feel that investors should bet on large and select midcap stocks in the next year. 38 percent are of the view that investors will be better off investing in the largecap space, and the remaining 8 percent see potential in the mid & smallcap space.
Will earnings recover?
Earnings for the March quarter have not been inspiring, and the trend most likely will continue in FY21. The March quarter earnings season has brought to the fore the challenging terrain ahead with multiple headwinds and moving parts.
“The adverse economic impact of COVID-19 is expected to wipe out FY21E earnings growth. The two months of economic lockdown has taken a toll on corporate balance sheets even as underlying demand has suffered,” Motilal Oswal said in a report.
For the 26 Nifty companies, sales, EBITDA, PBT and PAT grew 1.9%, 8.6%, -11.9% and - 13.8% YoY, respectively. Of the 26 Nifty companies that have declared results, 6 have surpassed, 14 have missed and 6 have met our expectations on the PAT front.
As many as 77 percent of the experts polled by Moneycontrol feel that earnings are unlikely to see a recovery in the next one year, but there could be some green shoots in the third and fourth quarters.
“For the year FY21 earnings will be badly hit. For the first quarter itself, it will be a complete washout. Two months out of three in the June quarter will see 30% of the potential income of a quarter on average,” Paras Bothra, President of Equity Research, Ashika Stock Broking told Moneycontrol.
“Second quarter will also be sub-optimal. Third and fourth quarters would see some growth coming back. Hence these all will still add-up short of the last year's growth levels. The only silver lining would be the sharp change in consumer sentiment because of a vaccine in the interim,” he said.
List of analysts who contributed to the poll:Ajay Menon, CEO, Broking and Distribution, Motilal Oswal Financial Services Ltd
Nirali Shah, Senior Research Analyst, Samco Securities