ETMarkets Survey: Most bullish Nifty estimates suggest 10% fall in 2020

NEW DELHI: If you thought the domestic equity market has embarked on a fresh bull run, hold your horses!

Even the biggest bulls on Dalal Street are not expecting Nifty50 to move past the 11,000 mark in 2020. More analysts are betting on a drift in the NSE barometer towards the 9,000 mark, suggests a survey that ETMarkets.com conducted among a dozen brokerages.

They generally see a lot of challenges for the equity market in the second half of the calendar.

A year-end Nifty target of 11,000 would mean a 7 per cent upside over Thursday's close of 10,293, but 10 per cent negative returns for the calendar over the December 31, 2019 close of 12,186. The lowest year-end target of 9,000 would require the market to shave off 26 per cent from Nifty for the year, or 14 per cent from its current level.

The Covid-induced lockdown impacted almost all businesses, except for those that deal in basic necessities, and the impact on earnings is likely to be broad-based.

Rusmik Oza of Kotak Securities said earnings estimates for FY20 and FY21 have been cut of late, but his EPS estimate for Nifty50 stands at Rs 450 for FY21 and Rs 615 for FY22. They could be downgraded further post June quarter numbers.

“Going by today’s estimates, one-year forward EPS of Nifty50 should come in at Rs 575. If we apply a 17-18 times valuation to this estimate, we get a Nifty level of 10,000 by the end of this calendar,” Oza said.

Umesh Mehta of Samco Securities said the recent rally might have created a ‘bubble’ in largecaps. "It is not ‘market cap’ which enables a business to survive. The underlying business model and management of debt and cash flows are core to survival of any company,” he said.

“From that perspective, we expect the market to correct as largecap valuations will mean-revert when they get aligned with ground reality. Some companies have reached extremely high valuations. Nifty will likely hover in the 9,000-10,500 range by year-end,” he said.

Despite the recent tally, equity benchmarks Sensex and Nifty are down 15 per cent each for the year, as the first half of 2020 draws close.

Hemang Jani of Motilal Oswal Securities said the stimulus announced globally was unprecedented, and in some cases, in the 10-20 per cent range of their respective GDPs. He expects more stimulus measures, which could help avoid hard-landing of the economies.

“The market ignored potential fallout of geopolitical tensions and the rising number of virus infections. It resumed cheering a gradual resumption in business activities and an earlier-than-expected normalisation in certain consumption sectors. Going ahead, if the situation continues to improve constantly, we may reach the 11,000 level with the support from global liquidity,” said Jani.

G Chokkalingam, Founder of Equinomics Research & Advisory, is betting on a better second half, as “many states have realised that it is not possible to resort to continuous lockdown, severely disrupting economic activities.”

He, however, said the market recovery in the first half, which pared Nifty’s year-to-date losses from about 38 per cent fall on March 23 to just 18 per cent now, has priced in the improved outlook for the second half.

“If there is a vaccine to prevent Covid-19 or an effective drug to cure the infection, the market would fully recover the 2020 losses and Sensex could be back at 42,000 by December-end. But any failure on this front could lead to at least 25 per cent decline in Sensex for Calendar 2020,” he said.

Deepak Jasani of HDFC Securities said the recent jump in the equity indices was ‘beyond anybody’. “We remain cautious on the market for the rest of 2020, given the shaky fiscal situation, rising joblessness and the time taken by most parts of the economy to revert to previous normal. Also there remains a fear that stress on the financial sector may spread to the real sector sooner or later,” he said.

Naveen Kulkarni, Chief Investment Officer, Axis Securities, has his year-end target for Nifty at 9,800, way below its current level. But he says he might revise it upward in view of a few positive signs.

Vinod Nair of Geojit Financial Services has cut his year-end target for Nifty to 10,500 from 12,500 earlier.

Siddharth Sedani of Anand Rathi Shares and Stock Brokers, said the market momentum would remain uncertain till the time a cure is found for Covid-19. “Volatility is likely to remain elevated. We remain cautious, but believe reasonable valuations could be used as an opportunity to top up existing investments in a staggered manner,” he said.