Most of the respondents admit that the market looked a bit stretched in terms of valuations, but some more upside cannot be ruled out.
The market might look overvalued, but it would be prudent for investors to stay invested as the Sensex and Nifty look ripe to hit fresh record highs, which could take them above 35,000 and 10,000, respectively by December 2017, according to a recent poll conducted by Moneycontrol.
The poll comprised of inputs from twelve CIO’s, HOR, CEO and HOR from top brokerage firms. Most of the respondents admit that the market looked a bit stretched in terms of valuations, but some more upside cannot be ruled out.
Moneycontrol poll found that 75 percent of the respondents feel that the market looks overvalued at current levels while the rest 25 percent don’t.
The S&P BSE Sensex, which has already rallied over 5,000 points o.r 20 percent so far in 2017 is likely to hit fresh record highs, suggest experts.
Over 60 percent of the respondents polled by Moneycontrol said that index is likely to stay above 32,000 and could hit 35000 by December, while 18 percent feel that it could trade between 30,000-32,000 levels.
"We are extremely bullish on the market. At least for the next 18-24 months, we don’t see the market going down. Valuations are a little stretched right now, but the level of exuberance is not like what we saw in 2007-2008,” Prakarsh Gagdani, CEO, 5Paisa.com, a subsidiary of IIFL told Moneycontrol.
“PE ratios are far lower now, and forward earnings more robust. Secondly, inflows from mutual funds and domestic financial institutions are healthy. The Sensex can cross the 35,000-mark for sure,” he said.
The optimism on the Street is high thanks to the flow of liquidity from both domestic institutional investors as well as foreign portfolio investors (FPIs) which have helped Indian markets to hit fresh record highs.
Foreign investors have pumped in nearly Rs 11,000 crore in the capital markets in the first two weeks of this month. With the latest inflow, total investment in capital markets (equity and debt) has reached Rs 1.6 lakh crore (over USD 24 billion) this year.
The Nifty50 which has quickly gained about 1700 points so far in the year 2017 should take out 10,000 level soon but consider it to be a crucial resistance point some bit of profit booking cannot be ruled out.
Moneycontrol Poll found that about 64 percent of the respondents feel that Nifty50 could well trade beyond Mount 10,000 while the rest 36 percent feel that there is a possibility that we could eventually head towards 9,800 levels by the end of the year as investors book profits at higher levels.
The Nifty50 is currently trading at a trailing PE of 25x and history tells us that the last time when the index was at this level which was back in 2010 and 2008 markets failed to sustain the momentum.
However, for the year 2017, Nifty50 which is trading at a trailing PE of 25.17x and a forward PE of 19.5x which is not alarming for analysts because earnings are expected to bounce back in a big way especially after GST; although intermitted profit booking declines cannot be ruled out.
“Valuations look stretched going by historical parameters; however some more upside is possible in the coming few weeks,” Deepak Jasani, Head - retail research, HDFC Securities told Moneycontrol.
“Retail investors may use this rise to reweight their broad asset allocation, relook at the stocks that they own and clean/shrink their bulging portfolios of stocks,” he said.
June quarter earnings season:
The June quarter earnings season which got off to a mixed start after TCS failed to lift investors’ sentiments while Infosys surprised to deliver numbers better than expectations could see more earnings downgrades than upgrades.
Moneycontrol Poll found that as much as 67 percent of the respondents feel that earnings downgrades are likely to exceed earnings upgrades for the quarter ended June which could be largely due to uncertainty around the implementations of goods and services tax (GST) as many companies saw destocking across the entire trade channels and distributors.
But, there will be winners from the implementation of GST. Experts feel that companies who are leaders in their respective sectors should do well; hence, some of the mid and smallcap companies would well outperform the index by a wide margin.
“Stocks in sectors such as autos, Midcap IT, power, FMCG and NBFC are likely to outperform. The focus is likely to be more on Companies gaining from unorganized sector especially after the GST such as Century Plywood, Finolex Pipe, Nilkamal, EXIDE, Amara Raja Batteries to name a few,” A.K.Prabhakar, Head -Research at IDBI Capital told Moneycontrol.
Dovish US Fed:
A recent dovish commentary from US Fed Chair Janet Yellen last week calmed investors’ nerves across the world when she testified on Capitol Hill this week. Earlier US Fed was aiming for 2-3 hikes in the current year but weak economic data may delay another US Federal Reserve rate hike.
The Fed's next policy meeting is on July 25-26th but it is unlikely that we US Fed will raise interest rates. The US Federal Reserve Chairman Janet Yellen last week said the Fed would need to gradually raise interest rates.
Moneycontrol Poll found that most experts on D-Street are not worries about likely repercussions of a possible rate hike by the US Fed. As much as 42 percent of the respondents said that D-Street will be able to absorb any likely knee-jerk reaction from a fed rate hike while the 33 percent of them said that D-Street is underestimating repercussions from a rate hike.
List of experts participated in the poll:
Dhananjay Sinha, head (institutional research) at Emkay Global Financial Services
Naveen Kulkarni, Co-Head Research, PhillipCapital India Pvt. Ltd.
Vinod Nair, Head Of Research at Geojit Financial Services.
A.K.Prabhakar, Head -Research at IDBI Capital
Yogesh Mehta, VP- Equity Advisory- MOSL
Prakarsh Gagdani, CEO, 5Paisa.com, a subsidiary of IIFL
Deepak Jasani, Head - retail research, HDFC Securities
Kotak Mutual Fund
Aneesh Srivastava, CIO, IDBI Federal Life Insurance.
Jimeet Modi, CEO, SAMCO Securities
Vijay Singhania, founder-director of Trade Smart Online.Siddharth Sedani, Vice President - Equity Advisory at AnandRathi