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Rally at risk as UBS sees earnings as 'glass half empty'

The market is getting "carried away" and will sputter once the buoyancy in global equities ebbs, Chhaochharia said

Rally at risk as UBS sees earnings as 'glass half empty'
Bloomberg
Last Updated : May 30 2016 | 10:55 PM IST
The rally that helped India's benchmark stock index post its best week in three months may have outpaced the recovery in earnings growth, according to UBS Group AG. Net incomes at companies in the National Stock Exchange (NSE) Nifty 50 Index will grow 10 per cent in the year to March 2017, slower than the 21 per cent forecast by analysts, Gautam Chhaochharia, head of research at UBS Securities India Pvt in Mumbai, said in an interview. The gauge ended 2015 within three per cent of his target of 8,200.

The Nifty erased losses for the year last week as earnings at some of the country's biggest companies, including Larsen & Toubro beat estimates and a forecast for the strongest monsoon rains in two decades boosted investor confidence. The market is getting "carried away" and will sputter once the buoyancy in global equities ebbs, Chhaochharia said.

"Earnings are recovering and some high-frequency data points have turned positive but the evidence isn't big and broad enough," he said. While Chhaochharia said he is bullish on equities over a three-year time frame, the market could decline "if the global risk-on trade doesn't remain as strong as it's been in the past two months."

The comments echo concerns raised earlier this year by other analysts even as corporate profitability is on the mend after falling in four of the last five quarters. Operating profits for the Nifty 50 companies have risen 10 per cent over a year in the March quarter, the most since the three months ended September 2014, data compiled by Bloomberg show.

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First Published: May 30 2016 | 10:42 PM IST

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