Market to see a period of consolidation, says Kotak Institutional Equities

The equity market could witness a period of consolidation after the recent run-up in stock prices, Kotak Institutional Equities said.

The note said rich valuations across sectors would cap the upside. At the same time, a reasonable macroeconomic position, improving profitability and volumes in the consumption sectors and a powerful medium-term narrative about India will likely protect the downside.

“We see limited money-making opportunities in the market, given expensive valuations and potential disruption risks across sectors. This may result in lower profitability and multiples over time,” the note said.

The brokerage said sufficient positives and potential negatives may offset each other over the next few months.

After hitting a lifetime high of 19,980, the Nifty has undergone a phase of consolidation. The 50-share index last closed at 19,465. 

The note further said that markets have a habit of surprising negatively, and risks can emerge from unknown quarters.

“The current valuations of the Indian market largely price in most short-term and medium-term positives. But they do not factor in any short-term risks (unknown) and medium-term challenges of lower profitability and likely lower multiples across major consumption sectors and stocks.

In other words, there is no margin of safety in current valuations, and any major negative event could lead to a large and swift correction in stock prices, given the inflated multiples,” the note said.
 

The brokerage said the market may find support from stable global interest rates over the next 2-3 quarters, given the sharp fall in headline inflation in the US and the expectation of similar declines in other developed markets. However, the duration of peak rates remains uncertain.
 

“In our view, central banks will likely hold policy rates at high levels for a reasonable period until they feel comfortable about inflation,” the note said.

Indices pare losses to close with gains

Sensex and Nifty pared early losses to close higher for a second straight session on Wednesday, supported by fag-end buying in index majors Infosys, L&T and M&M amid a mixed trend in global markets. In a volatile trade, the 30-share BSE Sensex climbed 137.50 points to settle at 65,539.42. During the day, it fell 0.56 per cent to 65,032.89. The NSE Nifty gained 30.45 points to end at 19,465. "The initial apprehension stemming from an above-expected surge in domestic CPI inflation, driven by higher food prices, induced volatility in the Indian market. PTI