The Indian equity benchmarks have corrected significantly from their highs but most market participants still have a grim outlook on the back of slowing growth, fall in consumption, subdued earnings and no concrete signs of recovery in the near future.
Experts believe that the slowdown, which was looking cyclical, is turning out to be structural in nature and combined with lack of measures to contain it may result in further fall in the valuation of companies. “The major concern for the market is serious slowdown seen in various sectors that seemed cyclical at the start but are turning out to be structural in nature,” said Kotak Securities, in its outlook report.
“Consumption-led growth and high government spending could be running out of steam and we are not seeing any revival in private investment. The slowdown in consumption largely reflects moderate growth in household income and higher taxes on households,” it added.
The Sensex has lost nearly 8% compared to its high of 40,312 touched in June. The broader Nifty is also down over 9% after breaching 12,100-mark early this year.
Incidentally, slowdown seems to be the most feared word on the street currently with companies across sectors, especially automobile and FMCG, which often reflect the overall demand scenario, reporting a fall in sales.
“The sharp slowdown in auto sales, NBFC stress and recent disappointment with the Budget has turned the narrative pessimistic among investors,” UBS wrote in a report. In June, total vehicle sales dipped by over 12%, with passenger vehicles sales falling over 17%. “There are structural undertones of a lack of quality jobs, implying the consumption resilience seen until early 2018 is likely unsustainable... Our view is that a negative feedback loop may be developing, creating risks of a vicious macro cycle in the near term,” added the report.
In a similar context, Emkay Global believes that the backdrop of a slowing economy and the low probability of any ‘big-bang’ stimulus events does not bode well for overall growth and earnings outlook.
“Nifty consensus EPS (earnings per share) has been seeing cuts, with the downgrade momentum spreading across stocks. The Nifty company results so far indicate Q1FY20 (first quarter of 2019-20) EPS growth of only 5% year-on-year. This contrasts with the steep 20-30% growth rates built into consensus expectations for FY20/FY21,” stated the Emkay report.
