India’s stock surge only a bear market rally, say global majors 

#GS3 #Economy 

‘Rising COVID-19 cases to significantly hit corporate earnings’ 

  • Global financial majors believe the recent surge in the Indian stock market is only a ‘bear market rally’ as concerns continue on the rising number of COVID-19 cases leading to a significant contraction in economic activity, thereby causing a huge dent in corporate earnings. 
  • Goldman Sachs, in its latest report, has lowered India’s rating to ‘market weight’ with a Nifty target of 9,600 by June 2021. 

Domestic risks 

  • While global tail risks may have reduced, we see significant domestic risks in India. The spread of the virus has escalated sharply in recent weeks.  
  • The extension of the nationwide shutdown for another three weeks and social distancing measures are likely to cause significant contraction in economic activity. 
  • Earnings estimates were likely to see a steep fall and, as market valuations are still looking ‘optimistic,’ it seemed early to say that the equity market had discounted all the negatives.  
  • Similarly, UBS has estimated a Nifty target of 10,000 by March 2021 with an upside and downside target of 11,500 and 6,000, respectively. 
  • This assumes significance since this is a huge drop since December, when UBS had estimated a base case target of 12,300 for the Nifty by June 2020.  
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