Market high on hope & hype, see muted 2013 returns : Kotak

Moneycontrol Bureau

Brokerage house Kotak Securities is of the view that Indian shares are high on hope and hype, and does not expect meaningful returns in 2013.

Key equity benchmarks have risen a better-than-expected 25% this calendar so far, driven by policy reform announcements during the latter part of the year and intermittent bouts of strong liquidity flows.

According to the team of Kotak strategists headed by Sanjeev Prasad, market returns in CY2013 will depend on the interplay between (1) reforms, which the Government may or may not be in a position to implement and (2) the reality of the Indian economy and earnings.

"India's complex politics, weak economics and a busy election year may impede meaningful reforms," says the Kotak report.

The Kotak team sees the market consolidating in CY2013, and has factored in a modest recovery in economic activity, 100 basis point-rate cut by the RBI and moderate earnings growth.

A key hurdle to the market’s rise could be expensive valuations.

"We do not share the Street’s optimism about meaningful returns in CY2013 and wonder about the stocks that will drive the market further. India-centric stocks are quite expensive with many discounting FY2014E/FY2015E earnings. Global stocks are also fairly valued given (1) weak global cycles and (2) limited scope of earnings upgrades," says the Kotak report.

And earnings upgrades look tough.

"We see limited scope for meaningful earnings upgrades without (1) stronger-than-expected global or domestic GDP growth and/or (2) specific reforms on fuel subsidies or domestic coal pricing," says the report.

Also read: Sensex gains on positive global cues; IIP eyed