CLSA, Goldman Sachs, Morgan Stanley’s Outlook On Nifty After Tumble
Most analysts said Indian companies were available at attractive valuations even as the equities tracked the worst global selloff in more than a decade after the novel coronavirus outbreak.
The NSE Nifty 50 has so far tumbled more than 40 percent from its January peak, with 90 percent of the stocks in the benchmark recording losses. The coronavirus pandemic, which resulted in the world’s biggest lockdown and threatens slowest growth since the global financial crisis, led to this fall in markets. The International Monetary Fund has already declared a recession.
Here’s what the analyst have to say…
- Since the market peak in mid-January, India has seen overseas outflows of $8 billion compared with cumulative foreign institutional investors selling $49 billion in emerging market Asian equities.
- Only Taiwan and Korea have seen the largest outflows than India, given their relatively higher foreign ownership levels.
- In the current equity market drawdown, total FII peak-to-trough selling has been $9.6 billion (0.4 percent of starting market capitalisation) — the second largest after the 2008 financial crisis when Indian equities saw foreign outflows of $15 billion (0.8 percent of market cap).
- Within sectors, FIIs have sold the most in financials, staples and industrials this year.
- Goldman Sachs stays overweight on India with a Nifty target of 10,800 by March 2021.
- On Asia Pacific, ex-Japan allocations, it is overweight on China, India and Korea, while underweight on Malaysia, Thailand and Australia.
- MSCI India is trading at 13.3 times next 12 months price-to-earnings, a premium of 12 percent versus MSCI Asia Pacific Ex-Japan Index.
- The risk-to-earnings in the broad market has increased with further cuts to our GDP growth forecasts. That said, the market is pricing in a lot of EPS declines.
- Sentiment and valuation indicators suggest that we may be dealing with a bear market trough, although to be more certain, we need additional fiscal response and, critically, flattening of the Covid-19 curves both at home and abroad.
- The market may retest its March 24 lows.
- Overweight on financials, which appear to be bearing the bulk of the pain in the index.
- Now is a good time to buy quality businesses that have suffered significant price erosion.
- Also overweight on consumer discretionary and energy, while underweight on technology.
- Cut FY21 Sensex earnings growth forecast from 10 percent to 7 percent to reflect GDP growth forecast revisions.
- Base case Sensex target for December is 32,000 (50 percent probability); bull case target is 37,000 (25 percent probability); and bear case target is 25,000 (25 percent probability).
- As China’s economy powers back up, it may be time to start thinking about a recovery for Asia’s beaten-down equity markets.
- But with all the uncertainties, two questions loom large. Could markets quickly bounce back to where they were at the start of the year or will it be a far slower path? And second, what will the world look like after a recovery? For instance, could work-from-home become the new normal?
- Base case is that recovery will take some time and that there will be some changes in the way we act and behave, but in many other matters we will also fall back to our normal behaviour before the crisis.
- India’s Nifty has underperformed emerging market benchmark by 15-20 percentage points on three/six/12-month basis.
- Our 20-year daily rolling analysis across 16 performance troughs suggests that such periods of underperformance by India rarely extend beyond the 20-percentage-point levels.
- Also, such periods of underperformance are usually followed by India outperforming by 9 percentage points, 22 percentage points and 16 percentage points on average in the following 90, 180 and 365 days, respectively.
- News flow around gradual lockdown relaxation and a potential fiscal stimulus can be the possible trigger for the relative performance.
- Large private financials, select autos would be preferred plays as valuation comfort is emerging.
- Nifty trades at 12.3 times one-year forward PE, a 12-percentage-point premium to its emerging market benchmark compared to its historical average of 35 percent. Such a discount to average valuation for Nifty was last seen in December 2008.
- Markets are at attractive levels now but may not have hit the final bottom on Nifty.
- Nifty forward multiples have fallen to nearly 15-year lows other than the 2008 Global Financial Crisis after a 40 percent drawdown from January.
- While the Nifty hit the same level as the global financial crisis-low on trailing price-to-book, it is still at a premium on trailing PE.
- With two-thirds of Nifty stocks trading 1 standard deviation below 10-year average multiples, bottom-up valuations have become attractive; but sentiment indicators have yet to signal a final bottom.
- Such levels have yielded great returns and look attractive even on bottom-up valuations.