The Indian market has done well in the last one and a half months but the geopolitical and other macro concerns persist which can lead to continued earnings downgrades, said Amish Shah, MD and head of research at Bank of America Securities in an interview with the Economic Times (ET).
"Indian markets have done well because of fewer options within emerging markets (EMs), low foreign investor positioning, fall in commodity prices - mainly crude. Some of these factors are sustainable, while a lot of other geopolitical and global macro concerns are still there. That could lead to continued earnings downgrades," Shah told ET.
"The current expectations from the consensus - of about 23% earnings growth for this fiscal - are extremely unlikely to be met. As earnings come off, valuation multiples will also have to adjust downwards to price in reality," he added.
Shah said he expects a near-term correction before a long-term bull story. He believes the Nifty may slip 9-10% lower than what it is today.
"We are of the view that against a 23% earnings growth, the more likely growth could be 17-18%. So, there could be a 4-5% correction on the back of an earnings miss and another 4-5% correction because valuations are outside of the comfortable zone. So, on a fair value basis, the market (Nifty) could be 9-10% lower than what we are today," he said.
Talking about the pockets of opportunities, Shah said valuations of financials, capital goods, and select auto are still reasonable and if the markets correct, defensives may relatively outperform.
Disclaimer: This article is based on an ET interview. The views expressed here are those of the analyst and not of MingGenie.
