Large India Broker Sees More Profit Discontent for Stocks

(Bloomberg) -- The recent rally in Indian equities don't reflect the full impact of the coronavirus pandemic on the economy and corporate earnings, according to HDFC Securities.

“We expect more disappointments than surprises,” analysts led by Varun Lohchab, head of institutional research, said in a note, They anticipate “a likely pronounced negative price reaction given the recent run up.”

India's main equity indexes have rebounded more than 22% from their March lows despite a barrage of bad news in the growing shadow of the pandemic. Unemployment is spiraling because of the world's most expansive lockdown, which also caused a record contraction last month in the nation's services activity -- the PMI plunged to 5.4 in April, the lowest reading in the world.

Poor 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.

Indian equities rebounded from a two-week low on Tuesday, with the S&P BSE Sensex index rising 0.7%, as the grim data on the services sector boosted bets of additional support measures from the government.

More views:

Monetary policy response isn't working as intended, while fiscal measures have been delayed and underwhelming
See up-tick in stocks as “bear market rally” rather than sustained turnaround
Prefers utilities, telecom, and insurers over lenders. Underweight automobiles and consumer goods makers on high valuation