While a combination of concerns is affecting investor sentiments leading to increased volatility in the stock markets, the biggest risk facing the Indian markets is high valuations followed by earnings disappointments and geo-political risks, reveals a latest market poll by Moneycontrol.
This assumes significance as the poll findings reveal that experts do not see the ‘sell India, buy China’ factor among the top three risks and clearly believe that domestic or internal concerns have a much bigger role in influencing investor sentiments.
Incidentally, the Moneycontrol poll did list ‘China India Rebalancing’ as one of the key risks for respondents to vote, but none felt that it should figure in the three biggest risks.
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As per the Moneycontrol market poll findings, 44 percent of the experts believe that high valuation of the Indian markets is the primary concern, with 36 percent of the respondents saying that earnings disappointments are the biggest risk.
Only around 20 percent of the respondents point to geopolitical tensions as the main factor weighing on the market.
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The Moneycontrol poll saw more than two dozen market experts participating with the respondents ranging from analysts to traders and from fund managers to advisors spanning across intermediary categories including broking firms, mutual funds, portfolio management services (PMS), advisory platforms and alternative investment funds (AIFs).
The Nifty 50 has delivered a return of 17.35 percent so far in 2024 (till September). Over the past five years, its annual returns have been 14.9 percent in 2020, 24.12 percent in 2021, 4.32 percent in 2022, and 19.42 percent in 2023.
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Furthermore, India has also seen its weightage in the MSCI Emerging Markets Index increase, largely driven by factors such as SEBI's relaxed foreign ownership limits and a surge in IPO activity.
In 2023, 243 companies – mainboard and SME combined -- went public on Indian exchanges, and the IPO momentum remains strong in 2024, with several more listings expected in the coming months.
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In a recent report, domestic broking firm Kotak Institutional Equities stated that investors seem to be overlooking the risks posed by high valuations, driven by the pursuit of returns over caution. “Greed has overtaken the fear of risks, whether visible or hidden,” the analysts stated in the report.
They warned that while past returns have been strong, these gains could evaporate once stock prices realign with fair values. Currently, Indian markets are trading at a price-to-earnings (PE) ratio of 25.8, significantly above the one-year average of 21.6.
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The analysts further observed that strong inflows into equity mutual funds and broader market activity indicate an elevated level of greed. This, combined with high confidence in price points and limited experience among investors, has fostered a misplaced sense of security.
As per the report, markets have shrugged off various negative developments -- be it the BJP getting less seats in the elections this year, government raising capital gains tax in the budget, subdued Q1FY25 results, or the escalating tensions in the Middle East region.
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Kotak analysts caution that these ignored risks, coupled with a growing gap between stock prices and their fair value, heighten the odds of a market correction.
Incidentally, the Chinese stimulus has gained investor attention in the past month with the Hang Seng index rising 26 percent in September. This comes after China's central bank unveiled a series of measures aimed at revitalising its struggling economy, which has been weighed down by a property sector debt crisis, rising youth unemployment, and weakening demand.
The People's Bank of China (PBOC) announced key steps, including lowering the reserve requirement ratio, cutting the policy interest rate, and reducing the market benchmark interest rate to stimulate growth.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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