INSUBCONTINENT EXCLUSIVE:
Sensex saw its worst monthly decline in October since the financial crisis a decade ago.BENGALURU: The outlook for domestic stocks for 2019
has been downgraded for the first time this year, according to a Reuters poll of strategists who expect the market to recoup its recent
losses only once uncertainty around next year's elections fade
Pressured by a steep sell-off in global equities along with dwindling credit supply, the main stock index, the BSE Sensex, has fallen about
10 per cent since hitting a life-high of 38,989.65 on August 29
October was its worst monthly decline since the financial crisis a decade ago.With state elections slated over coming months and a general
election scheduled for May, domestic shares could remain subdued until the results become clear, according to a November 13-26 poll of 50
strategists."The political uncertainty plus the correction in global stocks can take the local market down in the short-term and once these
concerns go away, we can expect it to recoup most of the losses," said CA Rudramurthy, managing director at Vachana Investments.Yet even by
the middle of next year the BSE Sensex is forecast to regain only about half its recent losses to trade at 37,000 from Tuesday's close of
35,513.14.While it is expected to rise to a new record high of 39,400 by end of next year, thanks to strong corporate earnings, the
strategists lowered 2019 predictions in the latest poll, the first downgrade in Reuters surveys this year
The August poll had a median forecast of 41,200 as the record-high.Over 60 per cent of 26 common contributors from the previous poll cut
end-2019 forecasts and two did not make any change
Only eight were more optimistic.The less bullish forecasts for next year underscored anxiety over a range of factors including the
elections, the rupee's sharp losses this year, capital outflows from emerging markets including India, and a tussle over policy between
the Reserve Bank of India (RBI) and the government.The rupee has lost about 10 per cent this year making it Asia's worst performing major
currency.The RBI board's decision on November 19 to ease liquidity conditions by giving banks more time to shore up capital and increase
lending to small businesses, in addition to open market operations, has helped the rupee gain about 2 per cent since then."Keeping aside the
political uncertainty, markets have already corrected significantly, recovery in corporate earnings and strong macro-economic factors will
push the index further up as the dust will settle around the liquidity situation probably next year," Vachana Investments' Rudramurthy
said.STRETCHED VALUATIONSOver 80 per cent of 45 equity strategists who answered an extra question said company earnings growth has not yet
peaked, though there are signs the pace will slow over the next year."The long wait on earnings growth is finally coming to an end, as they
are expected to grow above 20 per cent in 2018 and 2019, though the expectations have been somewhat moderated in the second half of the
year," said Kunal Kundu, India economist at Societe Generale.Given many companies have missed profit estimates over the last four years and
several have lowered their outlook for last quarter, a significant pickup in earnings growth is unlikely, some strategists said.Seven
respondents also said company earnings growth has already peaked."The downside risks to earnings estimates have increased over the past two
months, given the liquidity concerns, the rising cost of funds and input cost inflation," noted Gautam Duggal, head of research at Motilal
Oswal.The price-to-earnings ratio - a widely used measure for stock valuation - for the BSE Sensex is currently well above its long-term
average.And despite a sharp fall in recent months, nearly two-thirds of 47 strategists who answered a separate question said domestic shares
While 17 analysts said they were fairly priced, only one said they were cheap."Domestically, concerns over the scale of balance sheet
problems in the shadow banking sector will rumble on for a while yet
