Sensex could drop to 22,000 this year, says Ambit Capital

Stock markets are likely to bottom out in the next six months, according to Ambit Capital’s Saurabh Mukherjea. The economy, he says, will follow four to five quarters later.

Ambit said as the market was yet to factor in the magnitude of the slowdown currently underway in India, there is a high possibility of the benchmark dropping to 22,000 due to crumbling of the housing bubble and the fragility of India’s financial system. Besides, the determination of the Prime Minister to reset the way the Indian economy functions (making physical savings less lucrative, cracking down on black economy and overhauling the subsidy mechanism) also poses a threat to GDP growth. This led to a view that GDP growth in FY16 (6.8 per cent) would be lower than 7.3 per cent registered in FY15.

Observing a broad deceleration in economic momentum, Mukherjea, in fact, found indicators such as coal production, cement production, two-wheeler sales, rural wages, electricity generation, non-oil bank credit and bank deposits losing steam.

“Ten years hence, benchmarks such as the Sensex would shed companies belonging to conglomerates, metals and PSUs and would be replaced by businesses in regional consumer plays, dotcoms and life insurance,” feels Mukherjea.

The findings indicate the Indian economy losing momentum consistently from the second quarter of FY15. Ambit’s assay found that a pick-up in capital expenditure despite weak cement production, credit growth and rural wages data appeared counter-intuitive.

Ambit’s assay, christened the Keqiang (pronounced ‘kuh cheeang’) Index for India (KII) captures auto sales data, power demand data, dollar value of capital goods’ imports besides cargo (in tonnes) handled at India’s airports.

The index is named after the current Chinese Premier who told a US ambassador in 2007 that the GDP figures in the province that he then managed were unreliable and that he used three other indicators, namely, railway cargo volume, electricity consumption and loans disbursed by banks, to track economic momentum in his province.