One month of demonetisation: Indian markets have the fourth worst performance globally

S&P BSE Sensex and Nifty50 lost nearly 3.5% each. Only Mexico, Brazil and Philippines did worse at the global level, data show

It has been a choppy ride for the Indian equity markets that had been hit by the double whammy of demonetisation and the surprise victory of Donald Trump in the US Presidential elections, exactly a month ago on November 8. India’s Nifty (down 3.5%) was the second worst performing index in Asia after Philippines, and the fourth globally – after Mexico (down 5.9%), Brazil (4.3%) and Philippines (down 3.9%).
 
The frontline benchmark indices – S&P BSE Sensex and the Nifty50 – that lost around 7.5% during the month, though have managed to recoup some losses. The Nifty50 index, for instance, hit an intra-day low of 7,916 levels on November 21 has clawed back to 8,200 levels by December 08.
 
Among sectoral indices, realty, auto, private bank and fast moving consumer goods (FMCG) were the worst hit on the National Stock Exchange (NSE), falling 6% - 16% during this period. On the other hand, metals, pharma, PSU bank and energy indices gained 2.5% - 4.7%.

* % change between Nov 8 - Dec 8, 2016

Source: Bloomberg

Compiled by BS Research 

OUTLOOK

 
Experts say the road ahead for the markets will now depend on US Fed rate action, Union Budget 2017, growth in corporate earnings, progress made as regards the goods and services tax (GST) bill. Though the market has priced in a 25 basis point rate hike by the US Federal Reserve in December 2016, it is not prepared for an aggressive guidance for CY 2017, they add.
 
In this backdrop, brokerages expect the markets to remain volatile over the next three – six months. Some have even lowered or recast their December 2016 and March 2017 targets for the benchmark indices.
 
“In the light of negative effects of the recent steps taken by the government and with just four months before FY17 comes to a close, we scrap our current March 2017 S&P BSE Sensex target of 29,500 and unveil our March 2018 S&P BSE Sensex target of 29,000 levels,” said Saurabh Mukherjea, CEO of institutional equities at Ambit Capital in a recent note.
 
Among sectors, analysts at Motilal Oswal expect sectors like auto, cement and retail to bear the maximum brunt. They have also cut their earnings forecasts for FY17 and FY18.
 
“We further revise our Sensex EPS downward by 2% for both FY17E and FY18E to account for the demonetisation impact. Our revised FY17/FY18 Sensex EPS stands at Rs 1,379/1,703. We now expect Sensex EPS to grow 4%/24% for FY17/18, as against our earlier expectations of 12%/21%. We cut our Nifty EPS for FY17E/FY18E by 2% each. We now expect Nifty EPS to grow 8%/23% in FY17/18, as against our earlier forecast of 10%/24%, to Rs 424/523," point out analysts at Motilal Oswal Research led by Gautam Duggad.
 
NOMURA BULLISH ON INDIA
 
Despite the headwinds, Nomura, still maintains a bullish view on India, which is also their biggest overweight in the Asian region.
 
“We expect the MSCI Asia ex-Japan to end 2017 slightly below current levels, at 520. This assumes forward earnings growth of 6% (versus consensus of 10.5%) and a forward P/E of 11.8x versus 12.5x currently,” says Mixo Das of Nomura in a recent report titled "Asia 2017 outlook: Sailing into the storm"
 
“We are downgrading Korea to ‘Neutral’ and Malaysia to ‘Underweight’, and upgrading Thailand to ‘Neutral’. Our top ‘Overweight’ is now India,” Das adds.

Source Bloomberg

Compiled by BS Research Bureau