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While acknowledging the market downturn, KIE highlighted that returns have remained largely flat over the past 12 months; Key points for investors
Sensex, nifty
Despite the recent sharp correction in the Indian equity market, analysts at Kotak Institutional Equities (KIE) remain cautious, expecting the market to stay directionless over the next few months as it adjusts to the excess returns of recent years.
While acknowledging the market downturn, KIE highlighted that returns have remained largely flat over the past 12 months. As a result, the firm does not foresee significant value opportunities despite the correction and predicts a subdued trend ahead. KIE’s cautious outlook stems from factors such as high valuations across sectors, the risk of earnings downgrades, persistent global interest rate hikes, and diminished global investor interest in emerging markets.
The firm pointed out that most sectors and stocks are still trading at elevated valuations, with overvaluation becoming more pronounced as market capitalization decreases, particularly in smaller, riskier stocks. In this context, KIE expects small- and mid-cap stocks to face the most pressure.
Looking ahead, the firm anticipates a mixed performance across market caps, sectors, and stocks in the near term. Large-cap indices and stocks may trade within a range, while mid-cap, small-cap, and “narrative” stocks could experience a sharper correction, according to KIE.
Additionally, KIE expects the market to adjust its fair valuation multiples and earnings assumptions in light of the recent correction. Over the past 18-24 months, analysts and investors had increasingly relied on unconventional valuation methods and overly optimistic assumptions about price, profitability, and volume, driven by irrational market exuberance.
In essence, KIE anticipates that the “theory of reflexivity” that fueled the market’s rise will also impact its decline, especially in mid- and small-cap stocks, as well as “narrative” stocks, where valuations had become detached from fundamental realities.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
