UBS Securities India, an affiliate of UBS AG, expects the Nifty 50 to fall to 9,500-mark by March 2019. It also foresees 11,100/8,300 as upside/downside scenarios for the benchmark.

“The market has de-rated to 16x one-year forward PE from 19x. We do not expect the recent liquidity squeeze to turn into a prolonged credit crunch, though the era of easy money of the last three-four years is behind us,” it said, and added, “However, two risks remain: (i) Will Modi win in 2019?, and, (ii) Retail flows.”

Natural consequence

After a stellar rally this year that led the Nifty to its all-time peak in August, the benchmark index is down 11 per cent since then. Notably, even the broader indices and SMIDs (small- and mid-caps) have corrected meaningfully since August, even as they've already been under pressure since the start of this calendar year. “We believe the correction in Nifty is a natural consequence of the stark divergence seen thus far in the increasing valuations vis-à-vis subdued earnings growth,” it said.

The premium of Nifty Midcap to Nifty 50 on a trailing PE basis though has come down to 60 per cent from 100 per cent but is still high compared to history. “We remain ünderweight on SMIDS. Given the volatility in the markets and many moving parts, we encourage investors to look at PE multiples on an intrinsic basis (growth, cost of capital and return on capital), rather than just comparing them to historical averages,” according to UBS.

UBS Securities is overweight on information technology and private bank stocks, but underweight on cement, industrials, SMIDs and NBFCs.

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