Friday’s 2.3 per cent crash in the Nifty 50 should be seen in the light of a strong and unprecedented (at least in the last one decade) pre-Budget rally of about 7 per cent. Despite important negatives in the Budget such as slight slippage in fiscal deficit target for FY19 and imposition of long-term capital gains tax on equities, most brokerages have either given a thumbs up to the Budget or some including Jefferies, IIFL and Morgan Stanley at least think the Budget has been neutral to the economy or markets.

Big brokerages such as UBS and Nomura have so far retained their year-end target on the Nifty at 10,500 and 11,880, respectively.

Jefferies pointed out that 3QFY18 results have fared well so far and macro indicators are improving helped by the soft base. Morgan Stanley expects earnings growth getting accelerated through 2018.

“We expect corporate earnings growth to be significantly revived in FY19 and to sustain beyond that. Earnings growth will be the key driver of market performance, in our view. Macroeconomic headwinds may present a challenge but are not yet disruptive,” added Nomura.

De-rating possibility

Consensus earnings growth estimates stands at an average 23 per cent for FY19. Even if it is downgraded by a few percentage points, it will be the highest in many years, according to Credit Suisse. Besides earnings growth, factors such as crude oil prices, inflation, interest rates and GST revenue collections have become extremely key moniterables for the equity markets. If these factors keep throwing up negative surprises, de-rating of the market’s lofty valuation will continue, according to analysts.

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