Mumbai: While the equity markets have surged higher and climbed above their pre-demonetisation levels, the rally according to experts are unlikely to sustain without better support from corporate earnings growth and fundamentals.
Analysts at Kotak Institutional Equities said they do not see too many positive drivers for the Indian market over the next few months. Valuations of the Indian market appear quite full at current levels and earnings upgrades look difficult.
“We believe global and domestic ‘macro’ factors may be less supportive of equity multiples. The global economy recovery may result in higher global bond yields and monetary tightening by global central banks in the form of higher short-term policy rates and lower bond buybacks (QE programmes). Domestic macroeconomic conditions may have limited scope for further improvement given the sharp improvement in the same over the past 2 years,” Kotak Institutional Equities said.
The Sensex has gained 2,661.65 points from its recent low of 25,807.10 hit on December 26, 2016 while the broader 50-share Nifty has rallied 913.45 points or 11.55 per cent from its December low amidst strong support domestic investors.
“The continued strong inflows into domestic equities by insurance and mutual funds and passive foreign portfolio flows may support the market’s high valuations even if fundamentals may be less supportive in the medium term. In our view, liquidity conditions and expectations can only result in temporary ‘mismatch’ between valuations and fundamentals. Fundamentals will prevail eventually,” Kotak said.
