The recent rally in India’s equity markets do not reflect the full impact of the coronavirus pandemic on the economy and corporate earnings, according to analysts at HDFC Securities.
“We expect more disappointments than surprises,” analysts led by Varun Lohchab said in a note, adding that they anticipate a likely pronounced negative price reaction given the recent run up.
India’s main equity indexes are up more than 22 per cent from their March lows, despite a barrage of bad news in the growing shadow of the pandemic. Unemployment is spiralling because of the world’s most expansive lockdown, which also triggered a record shrinking last month in the nation’s services sector — the PMI plunged to 5.4 in April, the lowest reading in the world.
Disappointing quarterly results posted by index heavy weights, including Reliance Industries Ltd and Hindustan Unilever Ltd, foreshadow deeper weakness in earnings for months to come, according to the note.
The impact on real economy and corporate earnings seem to be underestimated after the current rally, Lohchab said in the note.