CLSA says there is no respite from the current economic gloom and the environment will continue to haunt investors for a few more months.
The Q2 earnings growth could be muted due to the one-time impact of rupee's depreciation, estimated at 3% of earnings.
CLSA's global strategy team, however, retains India as one of its favourite markets given the lower export dependence and RBI's potential capacity to fight a deflationary scare
In non-recession corrections, Sakthi Siva of Credit Suisse believes capitulation is reached when net foreign selling reaches 0.4% of market cap.
While the collapse in global equity market may be reviving memories of 2008, India is better positioned from a macro point of view, says N Krishnan of CLSA.
We continue to remain cautious on the markets amid earnings downgrades and maintain our March 2012 Sensex target of 19,500 offering a 5% upside.
We expect the EU sovereign debt 'worry' to slide off investors' radar over the summer and help to clear the way for a strong rally in EM equities in the second half of 2011.
The global backdrop has deteriorated for emerging markets. We think liquidity could be squeezed if matters deteriorate further in developed markets.
We see inexpensive valuations and reasonable earnings visibility as positives in an otherwise gloomy near-term macro outlook due to high crude prices and inflation.
CLSA sees FY12 Sensex EPS at Rs 1207, eyes inflation
The market has run 11% from its February lows even as macro risks relating to high crude prices and inflation have risen, says N Krishnan, CLSA.
Q1 has seen earnings cuts outweigh upgrades by 56%, though commodity price linked upgrades have helped raise overall Sensex EPS by 1%, says N Krishnan of CLSA.
India's model ranking falls from 13 to 17 this month. Also, our economist has downgraded his GDP forecast for the second time this year and earnings revisions breadth has collapsed, says Jonathan Garner of Morgan Stanley.
Given the current adverse backdrop in liquidity and commodity prices, the Budget has done what was in its control, to alleviate pressures on interest rates & rupee, says Nandan Chakraborty of Enam.
The market correction is well underway with the Sensex down 13% YTD. The near-term outlook is weighed down by five factors, but most of these headwinds are tactical in nature, says N Krishnan of CLSA.
With renewed inflation pressures and tight domestic liquidity conditions, we see India's premium valuations coming under pressure, says N Krishnan of CLSA.