UBS has base case scenario of Nifty at 10,000 by March

Mumbai: UBS has a base case scenario of Nifty at 10000 by March. In the base case scenario, the brokerage has assumed coronavirus-related disruptions to end by June, and expects earnings growth of 2% for Nifty in the ongoing financial year. In the upside scenario, the brokerage has assumed a 5% earnings growth for Nifty constituents in the 2020-21 financial year, with coronavirus-related disruptions ending by mid-May, which would see the Nifty ending the financial year at 11500.

UBS sees the Nifty at 6,000 by March-end assuming the coronavirus related disruptions continue till September.
"6000 assumes 14% decline in earnings in fiscal year 2021 and GDP also declining YoY in FY21, and a PE multiple of 12 times, that's what the downside scenario assumes," said Gautam Chhaochharia, Head of India Research at UBS in a conference call on Wednesday.


"This target assumes disruption continues till September, and disruption does not mean full lockdown," said Chhaochharia.

"We had expected that there will be a broad based earnings recovery cycle in India after a gap of 5-6 years but clearly the COVID scenario has pushed that out. Now whether it has been pushed out for a year or longer, will depend on how the COVID actually evolves," said Chhaochharia.

The longer the lockdown lasts, the impact on the economy will be higher, said Chhaochharia.

"The impact on markets in terms of fundamentals or earnings comes primarily from actual lockdown rather than the virus itself. Depending on the extent, the length and the details of the lockdown, it will impact economic activity and earnings," said Chhaochharia.

The longer the lockdown continues, it means that the policy impulse which the government has to bear or the policy cost becomes larger and larger, which constrains the recovery cycle more and more, he said. A longer lockdown would also mean potentially higher number of job losses or migrant labour not returning to work, which makes the recovery process more gradual, said Chhaochharia.