Bro­ker­ages Ad­vise Cau­tion as In­dices Con­tinue to Rally

Year-end tar­gets for the Sen­sex, set by bro­ker­ages, are al­ready breached or only a few per­cent­age points away

The Economic Times - - Disruption: Startups & Tech -

Mum­bai: In just two months of 2017, the Sen­sex has al­ready breached or is only a few per­cent­age points away from the tar­gets that top bro­ker­age houses had set for the year-end. Do­mes­tic in­flows has driven an un­prece­dented rally in the stock mar­ket af­ter de­mon­eti­sa­tion, tak­ing the bench­mark in­dices within the sniff­ing dis­tance of life-time highs, mak­ing it one of the most ex­pen­sive emerg­ing mar­kets. The Sen­sex, which closed at 28,892.97 on Thurs­day, is 0.4% away from 29,000 — the tar­gets set by Bank of Amer­ica Mer­rill Lynch and Deutsche Bank for De­cem­ber. The Sen­sex had briefly sur­passed 29,000 on Thurs­day, breach­ing the level for the first time since Septem­ber. The in­dex is 3.8% away from C i t i g r o u p G l o b a l Marke t s ’ Septem­ber-end tar­get of 30,000, while HSBC’s De­cem­ber-end tar­get of 30,500 — the most op­ti­mistic of the lot — im­plies an up­side of 5.6%.

UBS, whose De­cem­ber-end Nifty tar­get is 8,800, im­plies a 1.6% down­side from the cur­rent level. On Thurs­day, the Nifty closed at 8,939.5. The mar­ket re­bound came on the back of re­cov­ery in emerg­ing mar­kets amid a soft­en­ing dol­lar and per­cep­tion that ear nings have seen only a lim­ited im­pact of de­mon­eti­sa­tion.

Some of the bro­ker­age of­fi­cials, whom ET spoke to, did not com­mit whether they plan to raise their price tar­gets. But, they agreed that the bench­mark in­dices are trad­ing around their fair val­ues.

“It does not make sense to en­ter at cur­rent lev­els as valu­a­tions are high in the con­text of growth,” said Gau­tam Ch­haochharia, head of re­search at UBS.

The Nifty is trad­ing at a price-toearn­ings ra­tio of 22 times on a 12-month trail­ing ba­sis, higher than the five-year av­er­age P/E of 18.7 times. This makes In­dia among the Feb 23, 2017

most val­ued mar­kets world­wide.

High val­u­a­tion is partly a rea­son why foreign in­flows have been tepid and lower than other emerg­ing mar­kets. Many have pulled money out of emerg­ing mar­kets, in­clud­ing In­dia, since No­vem­ber on worries the US Fed­eral Re­serve will be more ag­gres­sive in in­creas­ing rates than be­fore with Don­ald Trump pre­par­ing a fis­cal stim­u­lus. The US Fed’s next rate set­ting meet­ing is on March 14-15.

“FII flows are tepid prob­a­bly be­cause there is more money to be made else­where. In­dia is not par­tic­u­larly cheap and earn­ings are not look­ing par­tic­u­larly ro­bust ei­ther,” said San­jay Mookim, In­dia eq­uity strate gist at Bank of Amer­ica Mer­rill Lynch.

Mookim said mar­ket par­tic­i­pants have un­der­es­ti­mated the im­pact of de­mon­eti­sa­tion and he is cau­tious on the­mar­ketintheshort­ter­ma­sex­pec­ta­tions have over­shot re­al­ity.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.