Expert view: Market multiples may see a de-rating over next 12 months, says Nitin Bhasin of Ambit

livemint.com:

Nitin Bhasin, the head of institutional equities at Ambit, says negative earnings surprises have increased over the last two quarters, which may continue, leading to a potential de-rating of market multiples over the next 12 months. He believes the current financial year (FY25) may be a year of earnings normalisation, and small and mid-caps, trading at near all-time high valuations, will likely benefit from a bottom-up approach.

In an interview with Mint, Bhasin shares his thoughts about the current market valuation and what the market expects from the upcoming Union Budget 2024.The power dynamics under a coalition government undoubtedly change, but it would be unreasonable to believe that genuine economic reforms will take a back seat. In fact, coalition governments in India have been credited with implementing bold reforms.

Measures that might centralise power, like One Nation, One Election, could take a back seat, but economic reforms will likely proceed as planned. The government must address the economic demand issues, especially at the middle and bottom of the pyramid.

However, this does not necessarily mean that the government will have to reduce capital expenditure to accommodate higher revenue expenditure. Such adjustments can be made within the existing framework utilising additional revenues, such as RBI dividends, without upsetting fiscal calculations.The markets generally anticipate measures from the government to alleviate distress at the bottom of the pyramid through increased expenditure.

We expect such measures in the upcoming budget, possibly including higher allocations for schemes like PM-KISAN and MGNREGA. The government could also consider reducing income tax rates for low and middle-income earners