HOME > BUSINESS > Indian stock markets ripe for a deeper correction – BMI

Indian stock markets ripe for a deeper correction – BMI

Indian stock markets, which have gained 40% over the last 18 months over the election of a strong government at the center, looks ripe for a deeper correction, a report by Business Monitor International (BMI – part of the Fitch Group) said.

“Indian equities are looking precarious, and a deeper correction looks highly likely as the ruling BJP government faces roadblocks in its reform agenda due to a lack of majority in the 245-seat upper house,” BMI said.

However, that is only half the story. “Corporate profitability remains poor and market breadth appears to be weakening,” BMI added.

In fact, after rising by about 40% in one year starting from February 2014 — when chances of a strong government at the center became clear — Indian stock indices have largely stagnated.

The Nifty, for example, touched the 9000 mark in early March, and has since then fallen back below the 8,400 mark.

msci

“Over the past couple of months, Indian equities have been struggling to head higher, and we are increasingly cautious. A break below around 1,000 in the MSCI India index would likely trigger a leg lower for the index, and possibly a large downside move towards previous resistance-turned-support at around 850,” BMI said.

BMI said the going for the current government, headed by reform-oriented Narendra Modi, has been far from smooth.

“The rally in Indian equities since May 2014 has been due to investors’ optimism with regard to the business-friendly reforms enacted by the newly elected Indian government led by Prime Minister Narendra Modi from the Bharatiya Janata Party (BJP). While reform momentum throughout Modi’s first year in office was broadly positive, the BJP’s lack of a majority in India’s 245-seat upper house (holding only 48 seats) means that the ruling government will face significant opposition from the Indian National Congress (INC; which holds 68 seats) with regard to several key reforms in the coming year.

“We are already seeing signs of strong political opposition during the ongoing monsoon parliamentary session, which runs from July 21 to August 13. For example, the speaker of the parliament had to halt proceedings on the first day of the session as the INC demanded BJP leaders facing corruption allegations to resign,” it said.

BMI said it did not expect the land acquisition bill to be passed in the near-term, but was hopeful of the implementation of the Goods and Service Tax (GST) system on April 1 2016.

The GST bill was framed in the time of the Congress government, and it is expected to see less opposition from the Congress Party.

“(The) slowing reform momentum is likely to weigh on Indian stocks over the coming weeks.”

The second part of the problem has to do with corporate earnings, BMI said.

“In terms of valuations, Indian equities are looking relatively expensive, with the P/ E ratio of the MSCI India index currently standing at 21.7x,” it noted.

“We highlight that the increase in equity prices over the past year has been in the absence of increasing profits, and much of the optimism regarding reforms has already been priced in. In fact, despite broadly stable EBITDA margins, net profit margins remain on a downtrend, and are 1.8 percentage points below their 20-year average of 11.7%.

“Among the reasons for poor profits of Indian corporates are high interest costs, and depreciation and amortisation expenses owing to increased corporate debt. We do not expect debt-servicing costs to come down by a significant amount any time soon given that these companies are taking on more debt. Moreover, despite the Reserve Bank of India (RBI) cutting its repurchase (repo) rate by a total of 75 basis points (bps) since the middle of January 2015, Indian banks have only reduced their base rate by approximately 30bps.”

On the technical side, BMI said the number of component stocks trading above their 200-day moving average (DMA) is on a downtrend, and only about half of the components are currently trading above their 200 DMA.

Follow ULTRA.news
GST to hurt some sectors, no rating changes now – Fitch Fitch Ratings said the new Goods and Services Tax regime will hurt the oil & gas, pop-and-mom retail and small and medium enterprise segments, while benefiting auto, cement and organised retail sectors.However, it said it won't revise it ratings due to this at this point. ...
Mahindra Finance to raise Rs 2,000 cr via debentures Non-banking financial services company Mahindra & Mahindra Financial Services said it plans to raise Rs 2,000 cr by issuing debt instruments to the public.The non-convertible debenture issue will open on July 10.The NCDs carry a rating of IND AAA from India Ratings and BW...
Farm loan wavers can impact India’s financial profile – Fitch Ratings agency Fitch said the string of farm loan waivers announced by various Indian states could impact the financial profile of the country as a whole.The agency, however, did not directly say that the moves could lead to a downgrade in India's credit rating, which would i...
Are ‘truly free’ demat and trading accounts here in India with Finvasia? Finvasia, a technology-driven online broking start-up, announced that it has rolled out what it claimed was India's first 'truly' free online demat account for investing in stocks and derivatives, including futures.There have been many 'free demat account' providers in the p...
RCom ‘respectfully disagrees’ with Fitch and Moody’s on its credit rating Anil Ambani-led Reliance Communications said it disagrees with the decision of agencies Moody's and Fitch to downgrade the company's credit rating based on its 'standstill agreement' with its lenders.Shares of RCom fell 4% to Rs 19.30 on the National Stock Exchange today ...
Fitch cuts IDBI Bank rating as NPAs climb to 21% Fitch Ratings said it downgraded IDBI Bank's Long-Term Default Rating and its 'viability rating' by one notch each to 'BB+' and 'ccc' with a stable outlook."IDBI Bank's Viability Rating reflects the deterioration of its financial profile in the last two years and our expectat...
Fitch Ratings upgrades Tata Motors on improving business performance JLR contributes most of the company's profitsFitch Ratings has upgraded its rating on Tata Motors by one notch, pointing to the automaker's improving business performance."The upgrade reflects the sustained improvement in TML's Indian automotive business over the last tw...
Glaucus questions stock price of Hong Kong-listed Fullshare Holdings Ltd Glaucus Research Group, a California-based short seller, said it was selling Hong Kong-listed developer Fullshare Holdings due to peculiar trading patterns seen in the stock's counter."Fullshare is supposedly a commercial and residential property developer, but this business ...
US Fed unlikely to reverse quantitative easing this year: HDFC Securities US Federal Reserve BuildingBroking and financial firm HDFC Securities Ltd said it does not expect the US Federal Reserve to start sucking out the liquidity that it has infused into the global financial market in the last nine years any time soon.The comments came in the ...
Yes Bank denies billion dollar QIP rumors Yes Bank, one of India's youngest, and fastest-growing banks, said it had no plans to go for a billion-dollar qualified institutional placement of its shares as reported by the media.The bank had tried to do a mega share sale in September last year, but the effort didn't find...
Administrative charges on employee provident fund cut to 0.65% from 0.85% After keeping the move on hold for three months due to the elections, the Employees' Provident Fund Organization has cut its administrative charges on the funds it manages to 0.65% from 0.85%, according to labor ministry sources.The cut in administrative charges -- which was ...
Vodafone merger values Idea at Rs 109.76 per share The merger deal between Idea Cellular and Vodafone India values equity shares of the Aditya Birla Group company at about Rs 109.76 at the time of completion of the merger, 2% below its present trading value.According to the terms of the contract, when the merger of Vodafone I...
Stock markets pricing in a BJP win in Uttar Pradesh – analyst Officials tally votes in a recent electionThe recent strength in India's key stock market indices indicates that market participants are pricing in a victory for the Bharatiya Janata Party in Uttar Pradesh, according to an stock market analyst.India's largest state has b...
Investors starting to understand Mukesh Ambani’s telecom game – Angel Broking Investors are only now starting to realize the plan that Mukesh Ambani and his telecom brainchild, Reliance Jio, have put into practice, and are therefore driving stock prices of his company higher, said Angel Broking, a retail-only stock-broker.Reliance Industries share pric...
Fitch downgrades Anil Ambani’s Reliance Communications over Aircel merger Fitch Ratings has downgraded India-based Reliance Communications Limited's long-term rating to 'B+' from 'BB-'."It is our view that Rcom's plans to demerge its wireless business into a 50:50 joint-venture and sell 51% of its tower business, Reliance Infratel Ltd (Infratel), w...
Housing.com says demonetization to hit Real Estate sales: re-enters rentals Anticipating a slow down in home sales in the coming months in the wake of the crackdown on 'black money', housing.com will restart its rental classifieds business soon.The portal, which had seen an ugly spat between founder Rahul Yadav and investors two years ago, had sh...
Fitch revises US growth estimates on Trump election, says protectionism to rise The surge in populism and anti-establishment sentiment witnessed in the Brexit vote and Donald Trump's victory in the US presidential election seem likely to push structural policies in the direction of economic nationalism, said Fitch Ratings in its latest global economic outloo...
Good time to buy Indian stocks – Morgan Stanley Global financial services major Morgan Stanley said India seemed poised for a five-year growth cycle for equities due to favorable macro-economic factors."India's macro stability remains in its best shape in several years and policy momentum is the best since 2007. Financial ...
Despite Demonetization, India will beat China in GDP growth: Fitch Ratings Despite a moderation in India's GDP growth rate in the short term due to cash crunch, the Indian economy will still grow faster than that of China, global ratings agency Fitch said."We still expect India’s GDP growth to trend higher than China’s in the medium term," said the ...
Fitch says demonetization gains may not last Fitch Ratings said the positive effects are unlikely to be strong and sufficiently enduring "to support credit profiles" and will impact GDP growth in the current quarter.Though the gains will be substantial in the short-term, they may not last as people may still go back...
India gold price jumps Rs 796 for 10 grams Expect the unexpected is the case what we see in gold price today.The country saw a sudden hike in the gold price today as Rs 30,820 for 10 grams from yesterdays price of Rs 30,024.The price for 10 grams has rose by 796 rupees from yesterday in India.UPDATE: As of 151...
US Federal Reserve likely to raise interest rate in December: Angel Broking Angel Broking said it believes that the US Federal Reserve is likely to raise policy interest rates starting from December this year.The broking house was responding to the latest move by the US central bank to keep rates steady at its last policy decision before next week’s ...
Venture Factory invites managers to join them and start their entrepreneurial journey Venture Factory, a Bangalore based venture builder platform, said it has introduced a entrepreneurial program which is aimed at middle and senior management level executives who will work under the company's payroll to setup their entrepreneurial venture.The program, christen...
L&T Technology to kick of IPO on Monday L&T Technology Services Ltd will open its initial public offer of up to 10.4 lakh equity shares on Monday.The shares will be sold by the parent Larsen & Toubro, the company said.Each share of the company, which provides technical design services, will carry a ...
HPCL, IOCL, Adani Ports to benefit from rupee depreciation – Fitch Hindustan Petroleum Corporation Limited, Indian Oil Corporation Ltd and Adani Ports and Special Economic Zone Limited are among the Indian companies that will benefit the most from the rupee's depreciation against the dollar, while Power Grid Corporation of India Ltd, NTPC Limite...