Why analysts are sceptical about India's record-breaking stock rally

According to analysts, a record high is happening only due to some stocks, so they cannot ascribe higher valuations and targets for all

bse, sensex, bombay stock exchange — The HDFC Bank counter witnessed volumes of Rs 21 billion in the cash segment

Last Updated : Aug 09 2018 | 6:33 AM IST

When it comes to the Indian stock market, analysts are not following investors' exuberance.

A booming economy and encouraging corporate results have sent the benchmark S&P BSE Sensex racing past 22 record highs this year. While gains have accelerated in the past six weeks, analysts have failed to keep up, and the average price estimate for members of the gauge is now just 14 per cent above their stock prices, the narrowest gap since February, data compiled by Bloomberg show.

That's partly because only a handful of the Sensex members are supporting Asia's best-performing stock index. While Reliance Industries Ltd., Tata Consultancy Services Ltd. and HDFC Bank Ltd. have driven the gauge's 11 per cent gain this year, other shares have suffered from rising interest rates and the potential for more central-bank tightening before a federal election in 2019.

"A record high is happening only due to some stocks, so analysts cannot ascribe higher valuations and targets for all," Deven Choksey, managing director at KR Choksey Shares & Securities Pvt., said by phone from Mumbai. "They are also waiting for the results season to get completed" to get clarity on overall earnings upgrades, he said.

The value of India’s equity market remains about $225 billion smaller than it was at its January peak, with just a little more than a third of the companies in the S&P BSE 500 Index trading higher than their 200-day moving average, data compiled by Bloomberg show. That's down from about 86 per cent in January when the broader gauge, which represents more than 90 per cent of the nation’s market capitalization, climbed to an all-time high.

While Nomura Holdings Inc. has raised its target on the NSE Nifty 50 Index, analysts led by Saion Mukherjee wrote in a Monday note that rising interest rates, dwindling monetary support and a normalization of domestic flows may hurt valuations for the nation’s stocks.