New Delhi/ Mumbai, August 16: The Indian equity market is trading at a premium to its historic average and its valuations are expected to stay high over the next three years, said an Edelweiss Securities report.
The report said while supply side has undergone a structural change, reform momentum is well above its historic past and more aggressive than emerging as well as global peers.
Moreover, domestic flows into the equity market will have a fairly large and sustained influence on how the Indian market is valued.
“We argue the love for India will only grow and its valuations will stay high over the next three years, as big fundamental transitions play through and pent-up cyclical drivers kick in,” said Aditya Narain, Head of Research – Institutional Equities at Edelweiss Securities in the report.
Edelweiss Securities sees the Nifty index at 11,100 in June 2018.
According to the report, India could effectively become a more domestic economy than it has been in the past because of its relatively high domestic growth.
The report noted that though FDI is still flowing in, there is less trade, capital and earnings that are offshore dependent.
“But it does suggest that India could well, by dint of its relatively high domestic growth, effectively become a more domestic economy than it has been in the past,” it noted.
It further said the role of FDI in India’s growth story is likely to be more muted this time around and these in turn should keep the market and economy more insulated from global shocks.
“Given the significant lack of market awareness, limited access and products (regulatory as also business constraints), Indian equity capital should stay predominantly domestic, and progressively shift ownership from FIIs to locals,” it said.
Stock market valuations are substantially greater than the long-run average and not far from the frothy levels of 2007, said the recently published government’s mid-year Economic Survey. The price-earnings (P/E) ratio — a widely watched valuation measure — of the Indian stock market reached a level of 23 in May and is estimated to have touched 25 by mid-July against long-run average of 18.
Sensex 322pt gain biggest in month
A softening of military posturing between the US and North Korea Wednesday came as music to the ears of investors, with the Sensex rallying 322 points, as domestic players pressed on with more buying. Wednesday’s rally is the single-biggest gain in more than a month. Consumer goods companies were on a roll on value-buying, recouping their recent losses sparked by worries over the impact of the Goods and Services Tax (GST). The 30-share Sensex zoomed 321.86 points, or 1.02 per cent, to close at 31,770.89, its highest closing since August 9, when it had closed at 31,797.84. Intra-day, the gauge shuttled between 31,805.99 and 31,399.35. The NSE 50-share Nifty, which again went past the 9,900- mark to touch a high of 9,903.95 intra-day, settled at 9,897.30, up 103.15 points, or 1.05 per cent.