Stock markets in overvalued territory; 5 macro risks escalating: Ambit Capital

"Even as the Sensex's valuations clearly seem to be benefitting from record investor optimism, it is worth noting that with the exception of India's GDP growth, several macro variables are precariously poised," Ambit Capital said in a research note.

Stock markets in overvalued territory; 5 macro risks escalating: Ambit Capital
the Sensex was quoted at 38,896.63, up 202.52 points, Image source:Reuters
By PTI
Updated: Tue, Aug 28, 2018
06:45 pm
New Delhi, PTI
RELATED NEWS
Fabulous Friday for investors as Sensex rockets over 700 pts; 6 power points that explain uptrend Fabulous Friday for investors as Sensex rockets over 700 pts; 6 power points that explain uptrend
Modi govt strategy in place to tackle weakening rupee, widening CAD Modi govt strategy in place to tackle weakening rupee, widening CAD
Forget crashing Sensex, did you invest in these companies? They have defied negative trends Forget crashing Sensex, did you invest in these companies? They have defied negative trends
How to be a crorepati: If you had invested in this stock, you would have become one! It's still not too late How to be a crorepati: If you had invested in this stock, you would have become one! It's still not too late
What should Sensex bloodbath be blamed on? In 4 weeks, index sheds 4,367 pts, loses Rs 18.28 lakh cr; India near 2008 type crisis? What should Sensex bloodbath be blamed on? In 4 weeks, index sheds 4,367 pts, loses Rs 18.28 lakh cr; India near 2008 type crisis?

Even as equity market is scaling new heights, domestic brokerage Ambit Capital has a word of caution as it thinks that the stock market is in "overvalued" territory.

According to the brokerage, there are five macro risks that could affect investor appetite for Indian stocks.

The risks include rising twin deficits, declining household savings to GDP ratio, the upcoming general elections and possibility of Indo-Pakistan hostilities over the next few years.

"Even as the Sensex's valuations clearly seem to be benefitting from record investor optimism, it is worth noting that with the exception of India's GDP growth, several macro variables are precariously poised," Ambit Capital said in a research note.

The report noted that GDP growth in this financial year will be a non-issue and is likely to surprise on the upside as an election-focused government pulls out all stops to gratify the voter and stimulate consumption growth.

Ambit estimates GDP growth at 7 per cent for 2018-19 as against 5.8 per cent in 2017-18.

Meanwhile, the report cautioned that "the stock market is in overvalued territory and is perhaps allocating an unduly low weightage to the increasing macro risks listed above".

The Sensex is currently trading at a 57 per cent premium to 9 emerging market's median P/E as compared to the 5-year average of 23 per cent, it added.

Watch Zee Business video here:

At the end of today's trade, the Sensex was quoted at 38,896.63, up 202.52 points. The benchmark has gained 4,839.8 points so far this year.

"Given the rising risk of fiscal profligacy and the risk of financial saving inflows slowing, we urge investors to be cautious regarding their NBFC sector exposure," it noted. 

By continuing to use the site, you agree to the use of cookies. You can find out more by clicking this link

Close