“While we acknowledge a challenging growth environment, the consensus narrative has turned pessimistic in a dramatic fashion since FY20 budget day. Negative feedback loop from sharp correction in stock prices has a role to play and is impacting the fundamental view (reflexivity), which has not changed materially over the past one month,” wrote Vinod Karki of ICICI Securities in a co-authored report with Ravin Kurwa.
Given the economic slowdown, analysts see more downward revisions in corporate earnings over the next few quarters. In this backdrop, some have even started to slash target levels for the frontline indices. Nomura, for instance, has cut its March 2020 target for the Nifty50 by around 8.5 per cent to 11,800 (12,900 earlier).
“Overall, the results season disappointed the Street, with earnings missing estimates on already muted expectations. There has been acceleration in consensus earnings cuts after the current results season. Consensus now projects NIFTY
earnings growth at 14 per cent/19 per cent for FY20/21. We do not rule out the possibility of a further 3 – 4 per cent cut to FY20/21 consensus estimates on account of the ongoing slowdown,” wrote Saion Mukherjee, managing director and head of India equity research at Nomura
in a recent co-authored report with Neelotpal Sahu.
Banks worst hit
State-owned companies, including banks, have been the worst hit given the fall since July 5, with as many as 33 stocks from the PSU basket trading multi-year low. Among the private sector, six companies each from the Tata Group and the Anil Ambani-led Reliance Group, five from KK Birla and three from Vedanta hit an over-two year low recently.
Sector-wise, a total of 26 stocks from the financial segment, including banks, are trading at multi-year lows on liquidity and lower credit growth concerns. That apart, a total of 21 stocks from the real estate and construction sector, 17 from the auto and auto ancillaries and 15 from capital goods segment are at multi-year low.
Liquidity-related developments have made most analysts cautious on the BFSI segment for now and they suggest investors tread with caution.
“We recommend to exercise caution given the emergence of fresh asset-quality risk in the corporate book (mainly NBFC/Real estate) and continued asset-quality pain from the agri/SME book. Overall, we maintain our positive bias toward banks versus non-bank finance companies (NBFCs), but recommend to stay put with high quality players,” says Anand Dama, vice-president for equity research at Emkay Global.