Nifty breaches 10,000 points for first time, but will consolidation follow?
Experts say that valuation concerns linger: the NSE was trading at around 21 times 12-month forward price-to-earnings, compared with a five-year average of 17.91.business Updated: Jul 25, 2017 11:44 IST
The NSE Nifty topped 10,000 points for the first time on Tuesday, as hopes for improving earnings, accelerating economic growth and government reforms feed a strong rally in Asia’s third-best performing stock market this year.
The NSE has surged 22 % this year, just behind South Korea’s and Hong Kong’s markets, in a broad-based rally fuelled by a surge in foreign investments and flows from retail investors buying into mutual funds for the first time.
Both investors have bet heavily that economic growth will accelerate from 6.1 % in the January-March quarter, boosting corporate earnings. Hopes are also high for economic and fiscal reforms after the government unveiled a national goods and services tax (GST) this month.
Still, valuation concerns linger: the NSE was trading at around 21 times 12-month forward price-to-earnings, compared with a five-year average of 17.91.
“It is a historical moment given Nifty touched the key psychological mark,” said Siddhartha Khemka, Head Research for Equity for Centrum Wealth.
“However we can expect a consolidation at higher levels given the rich valuations towards the end of the current corporate results season,” he added.
An extension of the rally in the near term will probably depend on the outcome of earnings of India’s blue chips, with the bulk of results yet to be released. Besides, not all analysts are convinced of a recovery as a dearth of private investments risks hampering growth.
“In the medium term, we are not very positive about the market because of high valuations and a muted outlook for the current corporate results season,” said Vinod Nair, Head of Research at Geojit Financial Services.
But most analysts agree that prospects are brighter over the long-term, as retail investors continue to invest into mutual funds via monthly instalments.
Deutsche Bank estimates retail investors have ploughed a record $31 billion into Indian equities through mutual funds since May 2014, more than the estimated $21 billion overall by foreign investors over the same period.