Moneycontrol Bureau
Analysts are sceptical about global growth following recent market turmoil. Though lower crude oil prices and consistent deflation are positive factors, experts do not see economy as well as earnings recovery in India immediately. According to them, recovery may be possible towards end of FY16 or in the beginning of FY17 as September quarter is also expected to be weak following Q1FY16. Most analysts are busy lowering targets.
Bhuvnesh Singh, Head of Research, Barclays feels while Q1FY16 earnings were by and large weak due to weaker-than-expected demand recovery but there were still some bright spots.
According to him, operating performance was better than topline performance, the demand environment showed signs of improvement in a few sub-sectors in the consumption and industrial sectors.
Barclays analysts expect an earnings bounce back in H2FY16 in several sectors like consumer, financials, healthcare and capital goods.
However, the brokerage slashed 12-month forward Nifty index target to 9,642 from 10,219 earlier due to delay in earnings recovery, Singh adds.
Macquarie also cuts Nifty December 2015 target to 8,700 from 9,600 as it builds in lower earnings post a weak Q1 and continued weakness in Q2. However, India looks good among its peers, says Rakesh Arora, Head of Research (India), Macquarie.
"In the midst of the ongoing volatility, India appears most attractive amongst emerging market countries at the moment, being a commodity consumer, a credible reform story and with a relatively high level of monetary independence," he reasons.
Ambit Capital has slashed its equity benchmark index target for second time. Delayed economic recovery led them to cut Sensex target to 28,000 for FY16-end.
"We see risks of a delayed economic recovery emanating from additional headwinds such as: (a) a major real estate price correction; (b) a banking system blowup, and (c) the NDA’s inability to expedite economic reforms. Thus, we are forced to revisit and revise trailing Sensex P/E multiple from 20x to 18x. This, combined with bottom-up FY16 EPS estimate of Rs 1550, leads to new end-FY16 Sensex target of 28,000, implying 7 percent upside," the brokerage explains.
Over the course of the past year, Ambit has cut Sensex target twice from 36,000 initially (in November 2014) to 32,000 (in May 2015) primarily on the back of a cut in bottom-up earnings estimates. Through these cuts, it kept the trailing Sensex P/E target unchanged at 20x on the premise that the structural positives emanating from the current dispensation’s three key resets will improve India’s long-term growth rate.
Meanwhile, Adrian Mowat, JPMorgan raises weight on Korea and Taiwan funded by reducing weight mainly in India, China, Brazil and South Africa. "We reallocate portfolio weight from financials, industrials and staples into technology," he says.Posted Sunil Shankar Matkar
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