New Delhi: According to a Jefferies research, the Indian stock market is once again plagued by worries about excessive valuations, notably in the midcap sector.
The report noted that the recent market rally has driven valuations to elevated levels, calling into question future sustainability and risk.
Jefferies noted that the rise in the market has made valuations a concern once more, especially in the midcap sector.
The report noted that the benchmark Nifty Index is now valued at 22. 2 times its 12-month forward earnings, having increased 14. 1% from its recent low on April 7.
The midcap sector has experienced even greater increases. The Nifty MidCap 100 Index has climbed by 23. 7% since April 7 and is now priced at a high multiple of 27. 1 times 12-month forward profits.
Due to these high valuations, several corporates are once again putting equity in the market to capitalize on bullish mood. According to the report, the equity supply has grown significantly, with firms collecting approximately USD 7. 2 billion in May and USD 6 billion so far in June.
Jefferies highlighted that this influx of equity supply represents the greatest risk to the market. Prior to the market adjustment, which began in late September last year, monthly equity supply was averaging USD 7 billion.
According to the study, there has been a shift in market sentiment since the Union Budget was revealed on February 1.
There has been a significant shift away from investment-led themes and toward consumption-led ones.
This trend has been aided by a more accommodative monetary policy atmosphere, which has benefited consumer finance equities. However, the report recognized that any future investment cycle is expected to be slower and more extended than the boom-bust cycle that spanned FY03-FY17, which resulted in overcapacity, particularly in the power industry.
The study highlighted that, despite the Indian markets experiencing a robust rally, particularly in the midcap sector, increased valuations and substantial equity supply might presents hazards.
