Market correction insufficient and pressure to continue, says Nomura

They could correct another 5% to 15% due to stress in the macro economy, says the brokerage.

The correction seen in the stock markets thus far is insufficient and there are significant downside risks, given the way macroeconomic data is shaping up, a Nomura equity strategist said on Thursday.

“The markets are trying to look through the current stress we see in the macros. There are potential risks to the market. Our estimates assume no major impact on growth and earnings. The market should have been at least 5 per cent lower than it is now. And if we factor in the concerns on growth and earnings, we will expect much more correction,” said Saion Mukherjee, head of India equity research, Nomura.

Speaking at the Nomura Investment Forum Asia 2022, Mukherjee added that the markets could correct another 5-15 per cent, depending on the outlook one has on growth.

The brokerage said though Indian corporate earnings have been satisfactory, there are concerns over economic growth and interest rates. And the global events since the beginning of the year have aggravated these concerns.

Nomura said while the domestic markets have come off 10 per cent from their October 2021 peak, India has still been an outperformer since the Covid-19 outbreak.

Mukherjee said the consensus view is not that pessimistic as there are expectations that inflation will be controlled over time. “And the spread between earnings and bond yield also indicates some level of overvaluation at the aggregate market levels,” he said.

According to Mukherjee, the consensus expectation for financial year 2022-23 (FY23) and FY24 is around 14 per cent earnings growth, aided by financials.

Apart from financials, Mukherjee said the brokerage is bullish on industrials and infrastructure as the concerns on commodity price rise have been factored in and valuations are not expensive; telecom because of the high earnings visibility and valuation comfort; and, pharmaceutical stocks as the sector’s revenue growth is less dependent on broader growth.

Nomura is bearish on automotive stocks as volumes could disappoint in light of the economic slowdown, and steel firms because of the weakness in local and global demand.

Mukherjee added that though foreign portfolio investor (FPI) flows have been volatile, they were counterbalanced by solid domestic inflows.

Mukherjee said Nomura’s December 2022 Nifty50 target is 16,900, which is 17 times the one-year forward earnings, leaving very little room for gains from the benchmark’s close on Thursday of 16,478.