After a year of outsized returns, market pundits have called for caution, given lofty valuations and the spurt in selling by overseas investors.
Uday Kotak, founder and former chief executive of Kotak Mahindra Bank, said it was time for investors to be cautious about where they invest within equities and eschew a one-size-fits-all approach.
“It is time for investors to be careful about where they invest. A large number of investors are first-time investors post Covid who have only seen the ups, and not the downs, of the capital market,” the banker said.
During Samvat 2080, the Indian stock markets made record highs, with the Sensex and Nifty surging about 23 per cent and 25 per cent, respectively.
Realistic Outlook
“Investors need to temper their returns expectations for Samvat 2081, especially given the lofty valuations. Earnings growth alone may not be able to support any significant appreciation in the market,” said UR Bhat, Director at Alphaniti Fintech.
He added that while the Indian economy continues to do well among emerging markets, FPIs have been selling. For the market to take off from here, either they have to stop selling and/or will have to start buying, he said.
Rate relief
Among the positives that may influence their investment decision, interest rates can come down aggressively both globally and in India going forward. And there might be some respite on the war front in West Asia as well as Russia-Ukraine, if Trump comes to power, according to Bhat.
“If the environment becomes more conducive for exports, sectors like IT and pharma may do well. And if the economy picks up from here on, banking and auto companies should benefit,” he said.
Rahul Singh, CIO-Equities, Tata Asset Management believes that financials as a sector and banks, specifically, offer better risk-reward and may deliver reasonable performance over the next few years. “Given the positive regulatory environment for banks in terms of early warning, asset quality will remain strong enabling higher growth in credit and ROE, leading to better valuations,” he said.
With the recent correction in the market from its all-time high the Nifty is trading at a PE of 19.41x one-year forward earnings, a level that is in line with historical averages, according to Motilal Oswal Financial Services.
“The market is expected to stay stable but may see some ups and downs because of state elections in India and ongoing global issues, especially the conflict in West Asia, which could affect supply chains. The results of the US elections and the earnings trajectory will be keenly watched,” the brokerage said.
