Worries remain on earnings-valuations mismatch, global issues; resolution of the MAT row could be biggest positive trigger
Many market participants are now beginning to say that there is a case for revising their year-end index targets downwards, even as others hold on to a more optimistic point of view.
A mix of disappointing earnings, taxation of foreign investors, poor monsoons and a slowdown in policy-making is said to be weighing heavy on sentiment, according to a Business Standard poll of market mavens.
Downside could be as high as ten per cent, according to a poll of eleven market experts.
Five out of the eleven market experts polled said that there is a case for revising index targets downward in light of the recent issues that the market is facing. Six others said that they are holding on to their targets for now, despite some of the levels suggesting upside of over 20-25 per cent by year-end.
Sectors that can see further correction include consumer discretionary stocks which depend on the rural economy for its sales, as well as information technology and pharmaceutical stocks. Capital goods and banking also figured in the list of stocks with some downside.
"We believe IT and pharma both look weak technically, obviously IT after the muted earnings. This sector can still see some more nervousness," said Rahul Shah Equities Advisory Group, Motilal Oswal Securities.
Those surveyed included Ambit Investment Advisors, ICICI Securities, IIFL, Sharekhan, Antique Stock Broking, Motilal Oswal Securities, Karvy Stock Broking, Reliance Securities, Geojit BNP Paribas Securities, Emkay Global and Equinomics Research & Advisory.
Sectors to bet on include automobiles and private sector banks. These could see upside by the end of the year, according to those polled.
Fifty-five per cent of participants believe that the market can correct further, while 45 per cent believe that there is room for consolidation at these levels. A similar percentage of those surveyed said that there is a case for moderating their expectations of year-end targets.
"The correction happened as there were no triggers on the ground level. Many stocks had also run up beyond fundamentals. FIIs again felt the heat of retrospective tax and government was slow in damage control," said independent analyst Ambareesh Baliga.
The resolution of the Minimum Alternative Tax (MAT) issue is the biggest immediate trigger for the market, according to the survey. Over 37 per cent of the total respondents said it would be the biggest trigger and could lead to short-covering if it is expeditiously resolved.
An improvement in corporate earnings was the next biggest trigger, with 27 per cent of respondents opting for it. Monsoons, and US Federal Reserve rate hike were the other key triggers that the survey picked up.