More earnings cut could be in the offing, warns Sunil Tirumalai of UBS
With Q2 earnings season already turning out to be the worst since March 2020, Sunil Tirumalai, Chief GEM Equity Strategist at UBS, says chances of further earnings cuts are higher than earnings increases.
«In the context of slowing signs in the economy (with nominal GDP growth currently in the bottom quartile of 15 year history), renewed fears of slowdown in global trade after changes in US political landscape, and a gradual slowdown in bank credit growth – it is hard to envisage a situation of sharp earnings increase for the stocks,» he says.
Edited excerpts from a chat ahead of UBS India Summit:
FII outflows have been one of the biggest reasons for the market downfall in the last few weeks. Are foreigners more worried about valuations and earnings growth slowdown or is it just about the China trade?
The simple answer is both. FIIs have net taken out ~12bn since end-September. The immediate trigger for these outflows was China stimulus newsflow, which started before the start of earnings season. However, a weak earnings season added to the mix – with weakness on topline and operating profits. In our view, Indian equity valuations have been very high relative to the growth they are offering. Accordingly, FIIs have been slowly trimming their overweight position towards neutral for some time.
Are you using the recent correction to increase allocation and buy some of the stocks available at relatively attractive valuations? How attractive has the market become after the dip?
Since the announcement of stimulus in
