Recent developments - proposed changes to the goods and services tax (GST) rates and S&P Global Ratings' upgrade of India's long-term sovereign credit rating to BBB, with a stable outlook, - may not be enough to bring foreign investors back to Indian markets in a rush, feel analysts.
About two-thirds of the incremental net income of the Nifty 50 over FY19-24 has come from companies in relatively low-valued sectors such as banks, diversified financials, IT services, and metals and mining.
A sharp rise can be attributed to the significant changes in India's share buyback tax regime, which will come into effect from October 1, 2024.
The universe of stocks trading at a 12-month forward price-to-earnings (P/E) multiple of 50x or more has swelled by 2.5x to 104, indicating the growing froth in the market. In March 2023, the number of stocks with a P/E of 50x and 100x stood at 41 and 3, respectively, which has now grown to 104 and 9, according to an analysis by Kotak Institutional Equities (KIE).
'Sectors like e-commerce, small finance, housing finance, and healthcare are in great favour, and people are paying a PEG ratio of up to 5, which is dangerous.' 'Wealth destruction is inevitable.'
'Investors need to be stock specific and should not rush to buy stocks at the current levels.'
The index is currently trading at 149 per cent of its historical P/B valuation, surpassing its previous peak of 125 per cent made in 2020-21.
Shares of public sector enterprises have corrected by up to 22 per cent month-to-date until March 19, 2024. Analysts attribute this steep fall to the valuation exuberance seen after a sharp run in these counters last year and suggest investors remain selective regarding the stocks in this space. "The rally in public sector undertaking (PSU) stocks has been stretched and sharp, although it is somewhat justified by improvements seen in earnings, operations, balance sheets, and overall profitability.
Notwithstanding the recent sharp decline in the stocks of public sector companies, analysts at Jefferies remain bullish on this segment. State Bank of India, Coal India, and NTPC are their top picks in this space, they said in a recent note. The public sector undertaking (PSU) or state-owned enterprise (SOE) index, with a 70-percentage-point outperformance versus the National Stock Exchange Nifty50 over the past 12 months, comes after a decade of underperformance before 2020.
Stocks of public sector undertakings (PSUs) have been on fire in the past year as investors cheered an improvement in key operating metrics and embraced counters of these state-owned enterprises, analysts suggest. The S&P BSE PSU Index has gained over 90 per cent in the past year, rising much higher than the S&P BSE Sensex, which has rose nearly 19 per cent during this period, according to ACE Equity data. The BSE PSU Index, reports show, has delivered a compound annual growth rate (CAGR) of 28 per cent (including dividends reinvestments) over five years and risen by almost 60 per cent in the past year.
The recent rally in small and midcap (SMID) stocks is not backed by fundamentals and is a case of irrational exuberance, analysts at Kotak Institutional Equities said in a recent report. The fundamentals of most of these companies have, in fact, worsened over the last few months, they noted. Yet, some analysts expect the bull run in these stocks to continue amid intermittent corrections.
Stocks of small- and mid-cap companies continued to gain ground in July, notwithstanding analysts sounding caution on these two market segments given the sharp run thus far in calendar year 2023 (CY23). Sanjeev Prasad, co-head of Kotak Institutional Equities, in a note co-authored with Anindya Bhowmik and Sunita Baldawa in June-end, had cautioned against the sharp run in small- and mid-caps. "We do not see any particular reason for the excitement in small- and mid-cap stocks.
The sharp rally in the markets thus far in fiscal 2023-24 (FY24) has left analysts struggling to find investment-worthy themes. The S&P BSE Sensex has surged nearly 7 per cent thus far in FY24 and hit a fresh 52-week high of 63,601.71 levels on June 22, mostly led by foreign institutional (FII) flows. "The Indian market has seen a broad rally in the past few months but headline indices have seen more modest performance. "We are not very clear about the reasons for the rally and the divergent performance and struggle to find ideas in the consumption, investment and outsourcing sectors after the sharp run-up in several of our favored sectors and stocks in the past two months," wrote Sanjeev Prasad, co-head, Kotak Institutional Equities, in a recent co-authored note with Anindya Bhowmik and Sunita Baldawa.
Brokerages expect India Inc to report an upturn in earnings for the March quarter of 2022-23, after a relatively muted showing in the previous two quarters. This growth is expected to be led by banking, financial services and insurance (BFSI) companies, FMCG firms, and automobile makers. The combined net profit of the Nifty50 companies (excluding Adani Enterprises) is expected to have grown 15.6 per cent to Rs 1.77 trillion in Q4FY23, from Rs 1.53 trillion a year ago.
'Investing in the stocks of holdcos can be a very efficient and inexpensive way of gaining exposure to the stocks of India's reputable growing business houses.'
After a sharp sell-off in the past two months, overseas investors were once again seen turning bullish on Indian equities. FIIs bought shares worth Rs 63.5 billion in the past five sessions, their highest weekly investment tally in many months.
Experts say the market is more bullish on the BJP as it will ensure continuity in policymaking.
The benchmark indices have rallied 28 per cent this year, while the broader market has outperformed
The next key battle the market will watch out for will be in Congress-ruled Karnataka
Bharatiya Janata Party's Varun Gandhi, Aam Aadmi Party candidate in Amethi Kumar Vishwas and Lok Janshakti Party chief Ram Vilas Paswan were among the prominent candidates who filed nominations on the fourth day for the penultimate phase of Lok Sabha election covering 64 seats in seven states.
Puneet Wadhwa and Debashish Pachal locate real estate stocks to watch out for.
Analysts expect earnings to become increasingly relevant given that the stocks have rallied on positive sentiment and the gush of liquidity. Macro factors, they suggest, have already led to a large re-rating in most counters
Materials and utilities were the worst-performing sectors in March.
'Macro headwinds are rising for Indian equities in the form of rising commodity prices, especially oil, depreciating rupee, fiscal challenges, election-related uncertainty and upside risks to inflation'
Thinning valuation gap between these and mid-caps indicates a shift in investors' preferences.
'It is unlikely that foreign portfolio investors (FPIs) might increase their India allocation, given the overweight status for most FPIs.' 'Given the commentary from the Republican Party, an anti-imports approach means money will not flow out of the US.'
In the last 3 months, rupee has depreciated 16% against dollar.
US Fed rate rise raises risk of further drying up of FII flows.
FMCG stocks have underperformed the market, falling 2.2 per cent so far in 2014.
Combined net profit estimated to grow 14.6% year-on-year, against a 5.7% decline in the Dec 2015 quarter
With a rise of around 30 per cent in the benchmark index S&P BSE Sensex, 2014 has been the best year for Indian equity markets since 2009, when the benchmark index surged 81 per cent.
RIL estimates output from KG-D6 could reach up to 60 mscmd in the next five years, when all satellite fields are brought into production.
Nifty 50 firms' net profit estimated to grow by a modest 3.1% in Q2, reports Krishna Kant.
With outlook uncertain for a range of sectors, no one is quite sure of where to invest in stocks
In India, bond yields have fallen nearly 70 basis points in the last one year.
India Inc will report good set of numbers in Q4.
Most experts said indices would open higher on Monday and rally might sustain for a few sessions
IT and pharma companies again save the day; mask pain in domestic consumption.
BJP's prime ministerial candidate Narendra Modi is predicted to win both seats -- Varanasi and Vadodara. Kejriwal is places at number 2 in Varanasi, says the ABP News-Nielsen exit poll. Senior BJP leader L K Advani is likely to win the Gandhinagar Lok Sabha for the sixth time.
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