Sub­dued Sam­vat 2074 seen as earn­ings re­cov­ery may take time

The Hindu Business Line - - MARKET WATCH - PRIYA KANSARA

Sam­vat 2073 was one an iconic year in the his­tory of Indian eq­uity mar­kets not only due to bench­mark indices hit­ting new all-time highs but also on ac­count of un­prece­dented events such as de­mon­eti­sa­tion and im­ple­men­ta­tion of the Goods and Ser­vices Tax (GST).

In Sam­vat 2073 so far, Nifty 50 has ended with gains of 17 per cent, with the broader mar­kets out­per­form­ing by up to 5 per­cent­age points. How­ever, Indian eq­uity mar­kets have un­der­per­formed global mar­kets as FIIs found other mar­kets rel­a­tively more at­trac­tive to in­vest in.

High val­u­a­tion

Mar­ket ex­perts ex­pect Sam­vat 2074 to be sub­dued due to high val­u­a­tions on the one hand and de­lay in earn­ings re­cov­ery (now ex­pected only after one- two quar­ters) on the other.

“Sub-par per­for­mance on the cor­po­rate earn­ings front cou­pled with the rally in the eq­uity mar­kets have taken val­u­a­tions to al­most all-time highs in In­dia,” pointed out Re­liance Se­cu­ri­ties.

Ko­tak Se­cu­ri­ties is also con­cerned with the de­te­ri­o­ra­tion in the macro en­vi­ron­ment. With­drawal of liq­uid­ity by ma­jor de­vel­oped mar­kets (US, Europe), rate hike by the US Fed­eral Re­serve (ex­pected) and high val­u­a­tion of Indian mar­kets will re­strict in­flows by FIIs, go­ing ahead. If FII sell­ing con­tin­ues (which has been hap­pen­ing since Au­gust) then it may af­fect do­mes­tic flows as re­turns and sen­ti­ment could get im­pacted. “Lo­cal flows have been en­cour­ag­ing so far. How­ever, lo­cal flows de­pend on how mar­kets per­form. Flows follow re­turns, not the other way around. Hence, we will have to track the progress of the flows when mar­kets don’t pro­vide any mean­ing­ful re­turn over three-four quar­ters,” pointed out HDFC Se­cu­ri­ties in a re­port.

Nifty has given flat re­turns since Au­gust as FIIs have been con­sis­tently sell­ing, but ro­bust do­mes­tic flow has saved the sit­u­a­tion.

There will be cer­tain sec­tors, which will be do­ing well. Anand Rathi con­tin­ues to be­lieve in do­mes­tic growth op­por­tu­ni­ties while Sharekhan is bullish on com­pa­nies which will gain from fi­nan­cial­i­sa­tion of house­hold sav­ings, in­creased gov­ern­ment spend­ing and shift to the or­gan­ised sec­tor. Ac­cord­ing to HDFC Se­cu­ri­ties, au­to­mo­biles and me­tals will do well, while real es­tate could turn out to be a dark horse. It ex­pects health­care to make a come­back. Hous­ing will also con­tinue to be re­main a big theme.

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