The Indian market, according to a research by Kotak Institutional Equities dated May 31, is a mixture of “rightful optimism and mistaken euphoria.” Some industries demonstrate the robustness and steady expansion of the Indian economy, while others exhibit “extreme euphoria based on unfounded narratives.”Â
In its most recent note, Kotak Institutional Equities stated that it sees little value in the Indian market, considering the majority of industries and equities to be overpriced in comparison to their fair value. The relationship between this overvaluation and market capitalisation, quality, and risk is inverse.
Numerous narrative and PSU equities, which rely on optimistic volume and profitability expectations, trade at high multiples. Even though a big BJP win would keep prices high in some industries, such capital goods, autos, and PSUs, Kotak is skeptical that many of these high hopes will come true, the report continued.
Rightful Optimism
The Indian market, according to a research by Kotak Institutional Equities dated May 31, is a mixture of “rightful optimism and mistaken euphoria.” Some industries demonstrate the robustness and steady expansion of the Indian economy, while others exhibit “extreme euphoria based on unfounded narratives.”
The market is divided into three segments: financials, which are valued reasonably; consumer, IT services, and pharmaceuticals; and capital goods, PSUs, cars, and vehicles, which are valued exuberantly. Investors may be pleased by India’s long-term growth potential and anticipated events after the new administration presents its economic program for the next five years, according to Kotak’s experts, including Sanjeev Prasad.
In its most recent note, Kotak projects that the BJP-led NDA would win a sizable majority in the 2024 Lok Sabha elections, especially with increases in East and South India and sustained domination in long-standing strongholds.
Expecting the administration to stick to its economic program and more market momentum after the polls (despite data resembling those from surveys conducted prior to the election). The market isn’t anticipated to be surprised by these exit poll results.
Economic Program of Liberalization
The government’s economic plans, such as investments and PSUs, have performed exceptionally well in terms of stocks in recent months. It also added that, despite a slight increase in market volatility, India’s VIX is still lower than it was during previous election cycles, suggesting that investors are less nervous.
Kotak anticipates that the ‘new’ government will stick to its economic program of liberalization, growth, and development and give priority to investment-led growth. This would be made possible by the recent large transfer of RBI surplus, which may result in higher capital expenditures than in the interim budget.
They predict that the government will continue to concentrate on important areas such as energy transition, affordable healthcare and housing, infrastructure development (including roads, trains, and defense), and manufacturing. Interestingly, the government has already implemented the majority of the measures required to encourage private investment.
