The market fell ahead of the budget for the second straight session. Multiple broker reports citing high valuations and a lack of favourable catalysts for further growth have somewhat temper the bulls’ enthusiasm.
The most recent economic survey was also a sobering read in parts. With a forecast of 136% by the end of June 2024, India Inc.’s earnings growth combined with robust retail and foreign inflows has caused the m-cap to GDP ratio to reach 124% by the end of December 2023. The report cautioned that “market instability rather than resilience signals if equity market valuations significantly exceed the real economy’s capacity.”
The analysts at Emkay Global also took a cautious stance on local equities, predicting that extended rate cuts in conjunction with a weak Q1FY25 earnings season could intensify the bearish mood. “Valuations of frontline indices have become frothy, with Nifty trading around 10 percent above the five-year historical mean at 21.4x 1YF PER, while NSE Midcap 150 and NSE Smallcap 250 are 52.5 percent and 35.5 percent above their respective 5-year averages,” they stated.
Bulls have limited margin of error due to extreme optimism and stretched valuations, even though CLSA’s ‘India Bull Bear Index’ indicates 92 percent bullish sentiment, the highest level of optimism before any budget in the previous 15 years.
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