Market scales new high on prospects of good monsoon
STREET SIGNS But earnings, macro numbers to be key
Indian stocks closed at fresh highs on Tuesday as better prospects for monsoons rains raised optimism on consumption growth. Fund managers said that the long-term macro outlook was positive and an earnings disappointment was the main bump in the road ahead.
The benchmark Sensex climbed 1% to end at 30,248 while the broader Nifty index crossed the 9,400 mark for the first time. Consumer packaged goods and fertiliser companies gained the most after the Indian Meteorological department said on Tuesday that rainfall is likely to be better than expected earlier as El Nino fears recede.
The fresh monsoon forecast suggests 100% rainfall compared to 96% earlier and is a “positive factor for the markets to move forward,” said Vaibhav Agarwal, head of research at Angel Broking Ltd in an emailed statement. “We believe that the current macroeconomic situation is conducive for the economic growth and GST (goods and services tax) and affordable housing are likely to take our GDP (gross domestic product) growth higher over next several years.“
Despite consumption being the only engine of growth, organisations such as the International Monetary Fund have a favourable outlook on India’s economic growth.
The IMF has estimated that India’s economic growth will bounce back to 7.2% in the current fiscal and increase to 7.7% in the next year. It has said that temporary disruption from the cash ban are expected to be offset by favourable monsoons and continued progress in resolving supplyside bottlenecks.
So far this year, the Sensex has climbed 13.6% despite earnings not being very favourable. Thus, at the same time, valuations have also turned rich. Currently, the gauge is trading at 18.2 times its expected earnings for the current fiscal, which is higher than the five-year average.
However, looking only at the Sensex and Nifty may not be right way to gauge valuations, say fund managers.
“The Sensex and Nifty are not truly representing what’s happening in the markets. Outside the Sensex/Nifty basket, earnings are better. there are more investible stocks out there. To that extent, one needs to be stock specific. I would advise investors to invest through a staggered approach rather than deploying lumpsums,” said Harsha Upadhyay, chief investment officer of Equity at Kotak Mahindra Asset Management Company Ltd. Others agree.
“The market is not cheap. It is factoring in future growth. If there is a disappointment in earnings, there will be a correction in the rally, but macro factors are very positive. I would advise people to go slow and invest systematically,” said Gopal Agarwal, chief investment officer, Tata Asset Management Ltd.