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Markets correct: SAT stops SEBI fine on NSE : Mid Caps fare well:
Indian markets have rallied 80% from March lows and gained 11% so far in 2020 but foreign brokerage JP Morgan sees more room for upside in Indian equities. The brokerage expects the Nifty to cross 15,000 by December 2021. However, the brokerage believes that it is possible only if the current extended price-to-earnings multiples sustain.
JP Morgan said the Indian economy does not appear strong enough to drive upgrades on already lofty earnings forecasts.
“The Indian economy has recovered rapidly so far, but consumer confidence and incomes/wages remain poor. Monetary policy is already as accommodative as it likely will be; a large fiscal impulse seems doubtful,” said JP Morgan. “Headline GDP numbers will look strong on a low base, but activity may not be strong enough to drive broad earnings upgrades,” said JP Morgan.
The brokerage said the uncertainty of the US Presidential election seems over, vaccine approvals are imminent and central banks are executing ‘QE squared’.
“This narrative is currently self reinforcing – Indian equities are being dragged up by the global tide. On a 2-year forward basis, MSCI India is 2.6 std. deviations higher than average P/E (close to 15 year highs), but is at an average P/E premium to EM,” said JP Morgan.
The National Stock Exchange (NSE) has moved the Securities Appellate Tribunal (SAT) against the capital market regulator’s Rs 6 crore fine for allegedly violating norms governing investments.
The Securities and Exchange Board of India (Sebi) had accused NSE of violating these rules by purchasing stakes in half a dozen companies including Computer Age Management Systems (CAMS), Power Exchange India (PXIL) and NSDL E-governance infrastructure (NSEIL).
India’s smaller stocks are beating their larger peers for the first time in three years, and some strategists say that outperformance will likely continue at least through next year.
The Nifty Midcap 100 Index has climbed 20% this year, and the Nifty Smallcap 100 Index has advanced 17%, outpacing the 11% gain in the large-cap NSE Nifty 50 Index. While the Nifty has set a series of new records this year, the smaller gauges remain below their peaks after two years of losses.
After six weeks of consecutive gains, Dalal Street bulls appear to be unstoppable this week as well. Amid record foreign inflows, progress in vaccine approvals and stimulus hopes, both the benchmark indices touched fresh record highs on Monday. “Investors should remember that valuations are high and risky. Sharp surge in Covid infections in the US, recent spike in infections in Germany, South Korea, etc, the farmer agitation lingering without a settlement and the possibility of a Brexit without a deal are areas of concern. Investors have to be optimistic but cautious,” say analysts
India still represents the best very long-term opportunity in the emerging markets basket outside of China. Also, unlike China, India’s business and political climate, while complex, has the backbone of common law, rules and dispersion of power. As a result, the nature of relationship between private and public sectors in India is different to China’s, leaving greater room in India for the traditional private sector,” said foreign brokerage Macquarie.
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