Nifty up 25% since Sept 13

The Economic Times - - Econ­omy -

Se­lect global bro­ker­age houses have, how­ever, be­come cau­tious about In­dian mar­kets, with the Nifty hav­ing risen more than 25% since Septem­ber 13 last year, when Modi was de­clared the BJP’s prime min­is­te­rial can­di­date. As Ra­jah pointed out: “There is also a risk that the gov­ern­ment might not be able to live up to such high in­vestor ex­pec­ta­tions, es­pe­cially in the short term.” Lead­ing for­eign bro­ker­age house Deutsche Bank has down­graded In­dian stocks to neu­tral, cit­ing ex­pen­sive val­u­a­tions rel­a­tive to lower GDP growth. “We down­grade In­dia’s rat­ing to neu­tral from over­weight/ neu­tral and ad­vise non-emerg­ing mar­ket in­vestors to wait for bet­ter buy­ing op­por­tu­ni­ties,” Deutsche Bank strate­gist John Paul Smith said in a note to clients. The new gov­ern­ment needs to tackle sev­eral eco­nomic is­sues ur­gently and this could swiftly de­flect in­vestor at­ten­tion. The most press­ing one will be strik­ing a bal­ance be­tween pro-growth mea­sures and mone­tary tight­en­ing given that the un­der­ly­ing fis­cal sit­u­a­tion could be worse than it ap­pears. There is also a strong pos­si­bil­ity that the Re­serve Bank of In­dia may have to raise in­ter­est rates given the cur­rent in­fla­tion­ary sit­u­a­tion and the pos­si­bil­ity of a weak mon­soon. Canada-based BCA Re­search said in­vestors need to judge whether the rally has al­ready dis­counted most of the good news and if share prices are at risk of a set­back. The Sen­sex is trad­ing at around 15 times for­ward earn­ings, which is ex­pen­sive com­pared with other emerg­ing mar­kets such as Brazil’s Bovespa in­dex at 9.5, Rus­sia’s Micex at 5 and China’s Shang­hai Com­pos­ite at 8.3. “The re­cent mar­ket rally has taken val­u­a­tions to a zone where they can no longer be termed cheap,” said Bharat Iyer, man­ag­ing di­rec­tor and head of In­dia re­search at JP Mor­gan. The rally over the past eight months has led to price-earn­ings ra­tio ex­pan­sion as bro­ker­ages have cut earn­ings es­ti­mates over the past few quar­ters due to the slow­down. How­ever, for­eign in­sti­tu­tional in­vestors have pumped more than .` 46,000 crore into eq­uity mar­kets so far this year as global in­vestors have built up high ex­pec­ta­tions on In­dia.

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