After rallying nearly 1.5% since the start of the week, the markets are consolidating in trade on Thursday. Buoyed by liquidity, developments at the global levels and better-than-expected March quarter results of companies, the Nifty50 and the S&P BSE Sensex have scaled new highs.
Will this momentum continue? Here is a quick compilation of what leading experts and market veterans think about the recent rally. They also highlight their concerns.
RAAMDEO AGRAWAL, CO-FOUNDER, MOTILAL OSWAL FINANCIAL SERVICES
It is an iconic closing for the Sensex. However, concerns still remain as to what will happen to the fundamentals as the valuations are getting stretched. The recent movement has been driven by liquidity. The political situation in India has become stable and recent elections show the popularity of BJP in the country. The markets are excited about what Mr Modi will do with so much political capital in his hand and look forward to more reforms going ahead. One can invest at the current levels from three – five year perspective.
S NAREN, ED & CIO, ICICI PRUDENTIAL AMC
We believe that we are in the midst of a good economic cycle. However, markets have gone up much faster than the change in economic cycle. We believe price-to-earnings (PE) for the markets looks expensive but price-to-book value and market-cap to GDP ratio is above average but not significantly higher than average level.
NIRMAL JAIN, CHAIRMAN, IIFL GROUP
I think the markets look good from a medium-to-long term perspective. The government is doing a great job by putting the right policies in place. If one invests for three years, investors will make money. Once the corporate earnings start growing at 15 – 20 per cent, the market levels will reflect that going ahead.
SANJEEV PRASAD, EXECUTIVE DIRECTOR AND CO-HEAD, KOTAK INSTITUTIONAL EQUITIES
A key question to ask is whether liquidity changes the fundamental value of a stock through changes to earnings or cost of equity. Clearly, earnings are not going to change despite our best wishes, which would suggest that the market ascribes a lower cost of equity (expected returns) on higher liquidity alone. The latter does not hold in the context of higher domestic yields and unchanged risks. It seems to us that ‘more’ money reduces ‘vigilance’ among investors.
SAURABH MUKHERJEA, CEO, AMBIT CAPITAL
We have been worried about the exuberance in the market. In spite of the strong liquidity-driven rally, we continue to be circumspect about the market levels. My reckoning is that the upside in the index levels will be modest going ahead. My greater concern is the NCD (non-convertible debenture / bond) market. I think we are approaching bubble territory in the bond market, especially the NCD market where the pricing seems to suggest that there is no risk associated with these instruments. As and when the bubble in the bond market bursts, the equites will become a collateral damage.
JIGAR SHAH, CHIEF EXECUTIVE OFFICER, MAYBANK KIM ENG SECURITIES
We can’t say there won’t be any correction. The market is heavy in terms of valuation and we still need a lot of evidence from the point of view of earnings growth rate. The government is doing the right thing by putting the policies in place. Measures like the goods and services tax (GST) bill, UDAY and InvITs are steps in the right direction, but the actual effect of these will be known over time. Through there is ample liquidity in the market, we also need to ensure there is decent credit growth, state-owned banks have healthy balance sheets. I suggest investors remain stock specific and invest only where they feel there is margin of safety.
KUNJ BANSAL - EXECUTIVE DIRECTOR & CIO – EQUITY, CENTRUM WEALTH MANAGEMENT
Clearly, the sentiment is quite positive. While, there is not much growth expectation from March quarter numbers, if the market continues to go up – it would mean that the FY19 and FY20 earnings growth numbers with mid-teens growth are getting discounted. The midcap and small cap stocks appear to be expensive at a headline level. European elections and geo-political situation will keep things interesting on the global news flow side, while monsoon and the GST implementation should keep us on our toes domestically. One cannot argue with momentum and clearly that is what has been driving the market.