Emkay Investment says Indian stocks could rise 7% further this year.
The index is up 5.3 per cent at around 22,900 points so far this year, according to Manish Sonthalia, while Emkay said it expects the index to end the year at around 24,500 points.
That’s slightly higher than the 23,850 points target by equity analysts by the end of 2024, according to a Reuters poll conducted earlier this month. This is because individual investors are putting their money into one of the most expensive stock markets in the world.
However, trading volatility has surged over the past few weeks due to doubts over the outcome of India’s six-week general election, which ends next week.
Opinion polls ahead of the election had predicted that the ruling Bharatiya Janata Party and its allies could win three-quarters of the 543 seats in parliament, but expectations have since been tempered. Emkay’s base case is that the BJP and its allies win 320 seats, giving or taking 20 seats. A stronger win could lead to a “happy” reaction, but investors should not cash out, Sonthalia warned. If the BJP wins less than 280 seats, it will be a negative surprise for the market, he said. “However, this will be a great opportunity to buy quality large- and mid-cap stocks as valuations will become very attractive for medium- to long-term investors.”
Contrary to popular opinion, Sonthalia believes that Nifty 50’s valuation, as measured by comparing stock prices to one-year forward earnings (PE), is not that expensive.
He expects the P/E of Nifty 50 to rise to 25 times from the current 20 times.
Among sectors, Sonthalia is bullish on banking and financial services, power producers and financiers, defense and large oil marketing companies due to their earnings momentum and growing interest and investments in these sectors.
He said mass consumer goods were somewhat risky due to uncertainty about rural demand recovery. ($1 = 83.1582 Indian Rupees)
