The tone of stock markets across the world is relatively poor due to slowing growth and trade war concerns, said Sanjay Mookim, director-India equity strategy, Bank of America Merrill Lynch.

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“Issues around growth concerns, trade war are big overhang on equity markets and nothing in India is still cheap. You cannot go out to investors and say here is something that you can invest from a 3-5 year horizon because you have got a combination of growth and fair value,” Mookim said in an interview with CNBC-TV18.

Impact of corporate tax cuts

The impact of corporate tax cuts on earnings per share of every company is easy to model because you can broadly get a sense of how much EPS for every company can move, he said.

“Our overall estimate is that Nifty EPS goes up by 7 percent and the market was very efficient because in first two days it moved almost exactly 7 percent," he added.

But it is difficult to understand the translation of these tax cuts to the economy. "That is something I don’t think the market is believing yet because we don’t know how these companies will pass on these tax cuts to consumers,” said Mookim.

So, given the tone of the market, it looks like people have just looked at the first-order effect and nobody is willing to look through second-order effect, which is the economic growth as result of the tax cuts, said Mookim.

According to him, post the corporate tax cut, it will be difficult for government to come out with further measures because where will they find the money to meet the deficit target of 3.3 percent. “My sense is having done this tax cut maybe they will have to wait for a while,” he added.

Debt crisis?

When asked if the market was sensing a fresh debt crisis, he said, “there are two answers to that - one is that the market is sensing it but I think that is not right.

Mookim said, "Our sense is that most of the large NPA problems have been recognized, have been called out because of the actions of the RBI and regulators of the last few years and provisions have happened.”

However, what is left now is the real estate problem and that does not seem to be large and don’t see real estate problems as a systemic issue.

He said BofAML has been overweight on financials in India because it is getting a combination of two things: (i) one is that most of NPAs are behind us (ii) the real estate crisis is concentrated in some part. And as the weaker financials step away, there is space for financials that are left behind to gain market share to grow, he noted, adding that the liquidity situation has also turned.

“Overweight on traditional quality banks in India and positive on select NBFCs as weaker hands exit the system,” he said.

First Published:Oct 9, 2019 12:21 PM IST