The brokerage said the Nifty’s
relentless fall since September without a global risk-off is unprecedented. The correction is largely driven by India’s weak earnings amid high valuations.
The index has dropped 15% from its recent peak due to poor earnings and persistent foreign institutional investor (FII) selling. However, with India’s valuation premium to emerging markets (EM) now at its 10-year average, Nuvama believes the India-specific de-rating may be over.”We think the correction is owing to India’s earnings reconciling with not just weak top-line growth, but also its EM peers. High valuation only added to the misery,” it said.
While the Reserve Bank of India’s easing measures may provide short-term relief, global uncertainties—such as a US growth slowdown and political risks—pose further downside threats.
When do markets bottom?
Historically, equity markets bottom out when earnings recover or when central banks implement deep rate cuts. However, global bond yields remain elevated, limiting the impact of monetary easing so far.Nuvama suggested that the earnings yield minus bond yield remains a reliable indicator for market turnarounds, which has yet to signal a reversal.
Given rising global uncertainties, the brokerage continues to maintain a defensive bias and prefer large caps over small and mid-cap stocks.
Nuvama has downgraded IT to ‘Underweight’ from its earlier rating of ‘Neutral’, considering high relative valuations and a weakening US outlook. It has raised ‘Overweight’ stance on consumer, given increased policy focus.
Nuvama is ‘Overweight’ on consumer, private banks, insurance, telecom, pharma, cement and chemicals. Its has an ‘Underweight’ stance on industrials, metals, power, IT, autos and PSUs.
Key risks, as per the brokerage, include large easing by Fed or sharp rupee depreciation.
