Modi rally over? Nifty slips below 2014 close, wipes out 2015 gains

MUMBAI: Of late, the Indian markets have been reacting negatively to good news and, as it appears, are over-reacting to bad news. After a carnage following Saudi Arabia's action on Houthi rebels, the Nifty has extended overnight losses.

It is 8th straight day of decline on the Nifty. The benchmark has wiped off 2015 gains as it slipped below the crucial 8300 level. It is down 9.2 per cent from the recent peak of 9119 hit on March 04, 2015

But all gains were erased in the past four weeks, since the Modi Administration unveiled its first full annual budget.

The decline comes as businesses cut their economic outlooks. An index from MNI, a unit of Deutsche Börse Group, said business sentiment fell almost 4.8 per cent in March to an 11-month low.

"Modi Magic" is over, MNI concluded.

The decline in confidence came in spite of the announcement of some potential positives for the economy in the government's first full budget which included measures to boost infrastructure spending, improving the ease of doing business, increasing tax collection and curbing the black market. The decline was led by construction companies, although manufacturing and services firms also posted falls in sentiment.

Before today's session, the Sensex was down 0.2 per cent this year. Amid a broader rally on the quarter's second to last day, the market is up 0.8 per cent, enough to escape a loss this quarter.

But the minor gain quarterly gain, which follows a 30 per surge in 2014, pales in comparison to a strong rally in much of the region this quarter:

   Nikkei 225: +11.4%
   Shanghai: +16%
   Hang Seng: +5.4%
   Kospi: +5.9%
   ASX 200: +8%

Hellsangel wrote:Comrade has been shorting Nifty for weeks now. Time for him to break out the champagne!

Foreign investors' interest in India was near a short-term peak, CLSA said in a note on Tuesday after interacting with 80 investors in the United States, adding several investors appeared to be "seriously re-evaluating" positions as they sit on hefty positions.

Overseas investors collectively held 47 percent of Indian stock market's free float at the end of December, Bank of America said in a report last month.

India, widely considered as the dark horse among emerging market, has underperformed in March versus other emerging market rivals.

MSCI India is down 5.9 percent in U.S. dollar terms compared with a 2.3 percent decline in MSCI emerging market index.

truthbetold wrote:Cd,
is the modi rally on or off?

But going forward, actual earnings and macro data points will matter increasingly, global investment bank, UBS said in a report.

The reality of a slow growth recovery is now being acknowledged and earnings estimates for FY15/16 have been cut 6-7% over last 6 months - recovery is yet elusive, said the investment bank.

UBS slashes their Nifty target for Dec-2015 to 9,200 from 9600 earlier, to reflect earnings cuts. "We now use a higher multiple of 17x one-year forward PE (vs. 16x earlier) as we expect current multiples to likely sustain," said the report.

The revised target also reflects the view of the growth recovery being slower than expected, as is playing out in quarterly corporate results. It does reflect possibility of near-term consolidation and even profit-taking, given limited absolute upside from current levels near-term.

UBS top-down earnings growth forecast for the Nifty is 10%/18% for FY16/17, post likely 7% growth in FY15. This implies likely further cuts to earnings growth estimates by the street or analysts on Dalal Street. It further adds that 4QFY15 will likely be weak.