Market Outlook: Analysts of global brokerage and research firm CLSA believe that Indian stocks are now on ‘Borrowed Time’ after 20 months of spectacular rally. Due to this, analysts have advised investors to book profits. The Sensex has gained 120% and Nifty 124% since the beginning of April 2020. Along with this, many times these records have reached a high level. However, given the higher valuations, higher input prices and the expected non-earnings prospects, the chances of further upside are slim.
exit time
So far this year, the best performance in Asia has been the Indian stock market. The major reasons for the downgrade by CLSA include rising energy prices, margin pressure and RBI’s withdrawal of incentives. The brokerage firm said that the rise in energy prices in general, as is happening at present, may lead to a halt in the uptrend in Indian equities. The brokerage firm also expects the RBI to announce a rate hike for the first time in April 2022. CLSA in its report has also highlighted the shortfall in fresh purchases by foreign investors. “Since the beginning of April this year, the pace of net foreign equity purchases has slowed significantly,” the report said. Although domestic demand exists, it has also started declining recently.
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Like its peers, CLSA has also expressed concern over the expensive valuations. “With trading at 31.6x cyclically adjusted P/E, India is currently at the most expensive earnings-based valuation since June 2008, a one standard deviation higher than its 18-year average of 22.6x,” he said. Earlier, last month UBS said that Indian markets were “extremely expensive”, while Nomura downgraded India from ‘overweight’ to ‘neutral’, citing expensive equity valuations.
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Morgan Stanley has also predicted lethargy
In October, analysts at Morgan Stanley had predicted that the Indian stock market could be sluggish for the next three to six months as high valuations limit returns. Morgan Stanley believes India fundamentals are still positive, but with expected RBI rate hike and Fed tapering with global inflation, returns look limited.
(Article: Kshitij Bhargava)
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