Indian stock markets have been extremely volatile since the Union Budget 2018 was presented with the benchmark Sensex dropping about 8% from the all-time peak achieved in the late January this calendar year. The sentiments seemed to have turned down on the back of several domestic as well as global factors ranging from worldwide sell-off in the equity markets in early February, a 10% tax on equities proposed by Union Finance Minister Arun Jaitley and the unravelling of India’s biggest banking fraud at nation’s second-largest PSU lender Punjab National Bank. Following the dejection, Citi has slashed its Sensex target to 35,700 by December 2018 factoring in the downward earnings revisions.
Citi has said that its estimates have factored in about 20% earnings growth for both Sensex and Nifty FY19 and that FY18 likely to post single-digit growth. We take a look at 3 reasons why Indian stock markets to be volatile in 2018.
- According to Citi, the credit costs for financials will likely to remain elevated in first half of fiscal 2019, while continuing competitive pressures on pricing/profitability in healthcare and telecom, earnings downgrades are key risks for markets over rest of 2018.
- The key drivers for the fourth quarter of the financial year 2017-2018 earnings will be energy, domestic autos and metal sectors while financials, pharma and telecom to be biggest laggards, Citi said in a report.
- The mid-cap companies are likely to see strong rebound in upcoming earnings, mainly due to strong performance in the steel sector, Citi added.
Commenting on the company-specific triggers, Citi said that Maruti Suzuki India’s better mix could aid margins, Jindal Steel and Power’s volume ramp-up and positive operating leverage and Cadila Healthcare’s higher-than-expected sales of flu prevention drug will be the potential surprises. While, on the other hand, Idea Cellular’s higher ARPU drop given the competitive intensity of the Indian telecom industry and Dr Reddy’s Laboratories’ higher-than-expected price erosion in certain high-value products will among potential negative surprises, Citi said further.
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