With the sharp run-up in stock prices over the past two months, corporate earnings growth potential for entire fiscal has already got reflected in the current market valuations, says a report.
According to domestic brokerage firm Kotak Institutional Equities, despite generally good economic news and results in the ongoing results season, reward-risk balance for Indian equity market is “not favourable”.
“The sharp run-up in stock prices over the past two months on positive global and domestic factors have resulted in valuations of the Indian market becoming quite full on 2016-17 earnings,” Kotak Institutional Equities said in a research note.
It further said there is low potential upside to its 12-month fair valuations based on September 2017 or March 2018 earnings for most large-cap Indian stocks.
Moreover, any bad economic news from China or good economic news from the US could derail the current “risk-on” trade in Indian equities, it said.
Regarding the domestic factors, the report said it is positive about domestic economic and earnings recovery over the next few quarters.
“We base our positive market view on economic recovery, especially in consumption, lower interest rates and higher household financial savings,” the report said adding that “any legislative disappointment in the current session of the Parliament may be a short-term negative.”