Brokerages go for another round of cuts in index targets

Some leading brokerages have slashing their Sensex and Nifty targets as earnings disappointment and a slowing economy have clouded the India outlook on what was in recent years the most preferred emerging market.

With earnings missing estimates on already muted expectations, Nomura has cut its March 2020 Nifty target to 11,880 from 12,900.

“There has been acceleration in consensus earnings cuts after the current results season. Aggregate earnings for Nifty have been cut by 15-16% for FY20-21 since the start of FY19," said Nomura, adding that possibility of further cuts in consensus estimates cannot be ruled out on account of the ongoing slowdown.


Recently, Citi trimmed Sensex target to 39,000 from 39,600.

“Indian equities have corrected significantly since July 2019 owing to domestic/global growth concerns and earnings disappointments. Valuations aren’t cheap still on absolute basis," said Citi. However, valuations are more reasonable on relative terms, said Citi.

Others have given bearish commentary on the earnings season, cutting Nifty’s EPS estimates.

CLSA, which expects 19% earnings growth in Nifty companies in the current financial year, said positives were few in the June quarter earnings of companies given the slowing economy. The brokerage cut Nifty earnings estimates for FY20 and FY21 by 5%.

Sentiment in local stocks deteriorated after July 5 as the government announced a surcharge on foreign portfolio investors registered as trusts. India's benchmark Sensex is down 9.5% from the record high of 40,312.07 hit on June 4. Global factors such as the escalating US-China trade tensions and the US Federal Reserve hinting that it is not likely to go for a prolonged easing cycle have also dented sentiment.

A sharp earnings downgrade in the current result season has led to an earnings growth expectation of a meagre 5% for FY20 excluding financials as compared to 14% in FY19, said Antique Stock Broking.

The brokerage said market sentiment is weak due to poor corporate earnings, weak management commentary, a disappointing union budget, macro headwinds, and low business /consumer confidence.

However, the brokerage is cautiously optimistic as it expects another 60 basis point repo rate cut in the next 6-9 months and since the valuations are attractive. There is also hope of an economic revival due to likely government policy intervention, lower interest rates and normal monsoon leading to good a Kharif crop harvesting and festive demand, said Antique.