Is market correction on the horizon amid high valuations?
Also Read: Nifty 50, Sensex rise over 1% this week as focus shifts to fundamentals; Wipro, M&M, SBI shine The brokerage highlighted that the majority of sectors and stocks are overvalued. This overvaluation varies, with most large-cap consumers, IT services, and pharmaceuticals showing relatively low levels, the investment space displaying medium levels, and several low-quality companies reflecting high levels of overvaluation.
The brokerage believes that the market is willing to overpay for weak business models and superficial narratives without considering fundamentals, risks, and valuations. The financial sector is the only exception, with most stocks trading at reasonable valuations among the larger sectors.
The brokerage said that the large 'disconnect' between price and value may continue to persist if the BJP wins the upcoming national elections in May, as expected, and the market continues to ignore potential medium-term disruption risks. Additionally, the brokerage pointed out that India's macroeconomic situation is characterised by strong GDP growth and manageable fiscal and inflation levels.
The brokerage sees sluggish global economic activity in CY2024, which it views as a favourable macroeconomic environment for India, stemming from potential interest rate cuts by developed market central banks and moderate global crude oil prices. Also Read: CLSA lifts target price on Dish TV amid reasonable valuations, stock jumps 13.5% However, it said that weak global economic activity may impact India’s exports, and a sharper-than-expected slowdown in the US could hinder the recovery of revenues for IT services companies.
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