The rally that recently lifted Indian shares to a record has some investors concerned.
Stocks are “getting a bit hot for comfort” as the market looks past the slowdown in Asia’s third-biggest economy, which is also facing headwinds from a rebound in oil prices and the uncertainty surrounding the elections starting Thursday, according to Kotak Institutional Equities.
India last week became the first among stock markets valued at more than a $1 trillion to hit a new peak this year as foreigners plowed $8.5 billion into local shares in 2019, the most among major Asian markets. The optimism is predicated on Prime Minister Narendra Modi retaining power, prospects of a revival in company earnings and a further reduction in borrowing costs.
For Kotak, the rally has made stocks expensive and there’s a risk that the company earnings estimates will be reduced if slowdown in the economy gathers pace. “Valuations of most growth stocks continue to be stretched while a few value stocks have also seen considerable re-rating,” analysts led by Sanjeev Prasad wrote in a note Tuesday.
Net incomes at the NSE Nifty 50 Index members are estimated to rise an average 18 percent in the fiscal year that began April 1, and 14 percent in the next, according to data compiled by Bloomberg. The gauge fell almost almost 1 percent as of 3:18 p.m. in Mumbai, set for the biggest retreat in two weeks.
Equities have priced in the possibility of the ruling party forming the next government with a reduced majority. A surprise victory for opposition parties may “create considerable confusion and consternation in the market,” the analysts said.