Moreover, our proprietary UBS Evidence Lab survey of 1,500 urban consumers suggests that while there is some recovery in household sentiment on income, inflation expectations remain high and intention to spend on specific products over the next six months has not picked up. This reinforces our view that a recovery in spending may be gradual, and market is pricing in too much growth, too soon on hopes of second half demand recovery.
At 17 times one-year forward price-earnings (and near our upside scenario of 10,000), markets are still trading at elevated valuations, despite more than 10 per cent cuts year-to-date to Nifty consensus earnings estimates – we believe the risk-reward is unfavourable at these levels. Our 2017-end Nifty target is 9,000 – which implies further downside to markets.
Local flows into equities remain strong however, which could provide near-term market support, though foreigners are selling.
Within Asia/Emerging Market, earnings momentum in India has been negative – India has seen one of the biggest earnings downgrades (though expectations still remain optimistic). In absolute terms, earnings have been growing in single digits. In comparison, Asia/Emerging Market peers have seen positive earnings momentum and some countries are expected to deliver double-digit earnings growth. Thus, in the near-term India may not be the most preferred-bet from a relative valuations and earnings momentum perspective. Over the longer term, reform momentum including on taxation, banking sector and balance sheet repair keep us positive.
Lack of detailed numbers, including historical data, makes it difficult to interpret the reported numbers, but our understanding based on clarifications put out by the government, discussions with tax experts and our analysis of the numbers is that the concerns may be overdone or premature.
Our calculations of potential monthly GST revenue in FY18, assuming 8 per cent year-on-year growth and seasonality of monthly indirect tax revenue, suggest GST collection is tracking just fine. This assumes the credit claims are a 'continuum' that will be there every month – an arguably valid assumption based on clarification from the government. Overall, while we have been more cautious than most investors over the last three years on the recovery in India's GDP and earnings, we believe the concern over a big revenue shortfall is overdone.
The author is Head of India Research, UBS Securities 
