Ambit cuts FY17 growth estimate to 3.5% from 6.8%

Brokerage says, cash crunch due to demonetisation drive of the government will paralyse economic activity in the short term

Ambit Capital has slashed its gross domestic product (GDP) growth estimate for this financial year to 3.8% from 6.8%.
 
The brokerage said the cash crunch created by the demonetisation drive of the government would “paralyse economic activity in the short term.”
 
Ambit said there would be a significant deceleration in growth in the second half of the financial year. There was even a possibility of growth contracting during the December quarter.
 
“We expect GDP growth to decelerate from 6.4% in 1HFY17 (as per Ambit estimates) to 0.5% year-on-year in 2HFY17, with a distinct possibility of GDP growth contracting in 3QFY17,” said the brokerage in a note authored by Ritika Mukherjee, Sumit Shekhar and Prashant Mittal. “From 3QFY17 until 4QFY19, we expect a strong ‘formalisation effect’ to play out as nearly half of the non-tax paying businesses in the informal sector (40% share in GDP) become unviable and cede market share to their organised sector counterparts.”
 

Ambit also cut the GDP growth forecast for 2017-18 from 7.3% to 5.8%. Further, it scrapped its March 2017 Sensex target of 29,500. The brokerage has set a target of 29,000 for March 2018, implying an upside of 11% for a period of little over 16 months.
 
Ambit said the earnings per share (EPS) of Sensex companies could remain flat in 2016-17 at around Rs1,390 a share “to reflect the weak GDP growth expected over the next two quarters.”
 
The Sensex on Friday closed at 26,150.24. The index has given up 1,441 points, or 5.22% since November 8, when Prime Minister Narendra Modi announced recall of Rs500 and Rs1,000 notes to clamp down on black money.
 
The Street is expecting EPS growth of Sensex companies between 15% and 18% for the 2016-17.Care ratings
 
Abolition of Rs500 and Rs1,000 notes might lower GDP growth by 0.3-0.5% this financial year as business in various sectors was expected to get adversely affected, says a report by CARE Ratings, PTI reported.
 
The services and manufacturing sector would be impacted the most. The measure was positive for the banking sector. Agriculture was expected to be the least impacted.
 
Prior to the demonetisation, CARE had estimated a GDP growth of 7.8% for 2016-17. Now, it has now projected that “the overall GDP growth would be affected by 0.3-0.5%”.
 
The agency noted that Small & Medium Enterprises would have a major problem in adjusting production schedules as both payments and receipts flow were in cash.

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