In a recent report, brokerage house Emkay believes that at 19.5x PER, the correction isn’t deep enough yet. At current levels, the brokerage is neutral on equities and would stay invested but not add to positions. If the Nifty does correct another 10 percent to below 20,000, it sees the market being attractively valued at
“We see Narendra Modi returning as PM but in changed circumstances. The broad direction of the economy is unlikely to change, though factor market reform and privatization are off the table. India is likely to now derate due to higher risk perception. Switch from PSUs and Capital Goods to FMCG and buy Indian equities if the Nifty falls below 20,000 (18x FY25 PER),” Emkay said.
It expects a market derating in the short term, as the risk on India has gone up. PSUs and Capital goods are the most vulnerable sectors, which investors are advised to stay away from for the time being. On the other hand, consumption should come back and it sees FMCG and value retailers making a strong return. The brokerage is also constructive on Healthcare.
Indian markets logged their worst session in over four years on Tuesday, June 4, experiencing a dramatic reversal that undid the gains seen on Monday. This downturn was driven by poll trends indicating a tighter-than-anticipated contest for the incumbent Narendra Modi-led NDA government.
The S&P BSE Sensex plummeted by 4,389.7 points or 5.74 percent, closing at 72,079. Similarly, the NSE Nifty 50 dropped by 1,379.4 points or 5.93 percent, ending at 21,884.5.
During intraday trading, the Sensex nosedived by 6,234.35 points or 8.15 percent to reach 70,234.4, while the Nifty plunged by 1,982.45 points or 8.52 percent to hit 21,281.4. These figures represent the highest intraday fall in the last four years, since March 23, 2020.
Adverse results: The ruling NDA is set to return with a thinner majority than in 2019, belying exit poll forecasts of a vastly improved majority. Current trends indicate that the NDA could end up with 290-300 seats, comfortably ahead of the 272 majority mark. The bigger surprise is that the BJP, on its own, is set to miss the majority mark by a wide margin, with around 230-240 seats, it noted.
Modi back, with changed equations: The brokerage further highlighted that Narendra Modi will return as PM for a third term, however, he will have to contend with changed circumstances. First, the BJP will be dependent on regional allies like Telugu Desam and Janata Dal (United), and make policy adjustments accordingly. Second, there will be greater demand to stimulate consumption in the economy from both, the BJP and its allies. There is an outlier possibility that the Opposition could form the government if some of the BJP’s existing allies cross over However, that would be unlikely, it said.
Economic trajectory unlikely to change: Despite the thinner majority, the broad pillars of India’s economic momentum are unlikely to change, noted Emkay. The focus on manufacturing will continue, especially given its importance in job creation. There may be a subtle shift back towards consumption stimulus, but the brokerage believes it would not be material. State budget deficits may worsen, but it sees little risk to the consolidation of the Central fiscal deficit. The capex cycle may also slow down as the government pivots (slightly) to revex spending, and corporates may get into a wait-and-watch mode for a few quarters. Finally, the brokerage expects the unprecedented macro-financial stability to persist, with little risk of a collapse of the twin deficits or bank/corporate balance sheets.
Reforms at risk: According to Emkay, factor market reforms like those related to land, agriculture, and labor are now off the table. Privatization and asset monetization are also at risk, which could drag government capex in the short term. Some political reforms like harmonizing elections (which need deep constitutional change) are now also unlikely, it added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 04 Jun 2024, 05:33 PM IST
