Domestic markets are expected open on a flat note on Tuesday amid mixed global cues. While the market has ignored the US-based short-seller Hindenburg Research’s scathing report on SEBI and the Adani group so far, any further escalation on that front could impact market sentiment, said analysts. Currently, there are no fresh triggers for the market to move up or down and the movement will mostly align with global sentiment, they added.
Gift Nifty at 24,330 indicates a marginal weakness for the Nifty at open.
According to Deepak Jasani, Head of Retail Research, HDFC Securities, global stocks struggled to hold gains on Monday as participants prepared for a week packed with US data that will throw light on its health and the outlook for Federal Reserve interest rates. Most global stocks rose, extending a rebound from last week amid growing hopes that concerns over a US recession were overblown.
“Investors slashed equity allocations at the sharpest pace since the onset of the Covid pandemic during last week’s bout of market volatility, according to data from Deutsche Bank AG. Aggregate allocation to stocks is now in the 31st percentile and underweight, as per a note dated August 9. Just three weeks ago, exposure was at the top of the historical range in the 97th percentile,” he said.
Meanwhile, a mixed set of macros (IIP and CPI data) kept marketmen anxious.
Rajani Sinha, Chief Economist, CareEdge Ratings, on IIP data, said: “Growth in India’s industrial output moderated to 4.2% in June from a 7-month high of 6.2% in the previous month. Moderating growth in the manufacturing and electricity sectors offset the acceleration in mining growth, weighing on the overall industrial performance. The performance in consumption related segments remained mixed2, with output of consumer durables rising by 8.6%, while non-durables output contracted by 1.4%.
Broad-based consumption improvement and the revival of private investment remain crucial for industrial activity. From the consumption perspective, the trajectory of food inflation and progress of the monsoon remain the key monitorables.”
Looking ahead, the base effect will turn unfavourable in both August and September, which can lead to a reversal of the trend witnessed this month. “For FY25, we expect inflation to average 4.8%. If food inflation moderates, we anticipate that the RBI may initiate a shallow rate cut cycle in the second half of the fiscal year,” he further said.
Asia-Pacific stocks are mixed with Nikkei, Singapore, Hong Kong and Australia up, while Chinese stocks are down in early deals on Tuesday.
Nifty fairly valued
Meanwhile, a report from domestic brokerage Motilal Oswal Financial said the Nifty-50 trades at 20.3x its one-year forward earnings. “Following the recent correction, it is fairly valued and within its 10-year forward average multiple of 20.4x. Compared to its EM peers, Indiais has been considered relatively expensive for a long period. An anomaly in a data set can be overlooked, but when consistent, it becomes the norm,” it said
India enjoys its premium valuations due to: Nifty PAT, which has compounded by 25%/18%/ 12% over the last 3/5/10 years; a strong, continuous, and stable political set-up, with the victory of PM Narendra Modi/BJP (under NDA) for the third consecutive term that provides policy continuity and reforms momentum, a GDP growth rate ranging between 6% and 7% during this period; and healthy macros – stable currency, twin deficits under control, peaking of interest rates, a moderating inflation print, and massive development of digital and physical infrastructure, the brokerage said.
Nifty returns
“Over the past five years, the Nifty-50 has delivered stellar returns at 17% CAGR, supported by equally impressive corporate earnings CAGR of 18%, resulting in an increase in Nifty profits to INR7.9t in FY24 from INR3.5t in FY19. We expect the earnings momentum to sustain; albeit, the magnitude of its growth is expected to moderate to ~15% over FY24-26. As highlighted in this note, the Nifty P/E remains well within its 10-year average range and is expected to maintain this level going forward. We remain constructive on the markets, and our preference is predominantly in favour of large-caps, as the valuations of mid- and small-cap indices are trading at a premium of 79% and 8% to Nifty-50, respectively,” it added.
Motilal Oswal said: “Our model portfolio underscores our strong belief in the domestic structural and cyclical themes. We continue to remain bullish on PSU Banks, Consumption, Industrials, and Real Estate, and we have turned constructive on Technology. We also remain positive on Healthcare, and remain underweight on Private Banks and Energy.”
