1. Economy looking up, stocks will take longer: 3 risk factors

Economy looking up, stocks will take longer: 3 risk factors

Beginnings of an economic turnaround may not translate into higher returns at the stock market...

By: | Updated: January 14, 2015 2:19 PM
BSE Sensex, India stock market, India markets

While the market has factored reforms through executive actions or legislations, the prospect of failure to convert ordinances into proper Acts is a risk.

The beginnings of an economic turnaround, driven by the government’s reform initiatives, may not translate into higher returns at the stock market, says a report from Kotak Institutional Equities.

The brokerage has identified two reasons — stretched valuations of quality stocks and possible earnings downgrades. That, however, can be reversed if there is a higher-than-expected interest rate cut, but the report says any aggressive action from the RBI could be constrained by external developments.

RISK FACTORS:

1. Interest rate cut: While domestic factors such as inflation and the fiscal situation has improved, the external factors — currency and uncertainty around the US Fed rate increase could restrain the RBI.

2. Reforms: While the market has factored reforms through executive actions or legislations, the prospect of failure to convert ordinances into proper Acts is a risk.

3. Valuations, earnings upgrades: Valuations of quality stocks in high-growth sectors are quite high, and the report has identified downgrade risks to sectors such as automobiles and industrials. The energy sector is under pressure on falling crude prices.

India stocks, company earnings, Indian economy

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