Andrew Holland, CEO, Avendus Capital Alternate Strategies
In the backdrop of a tightening of monetary policy by the Federal Reserve, widening national current account deficit and a likely higher fiscal deficit slippage, the stretched valuations signal complacency on the Street. The depreciation of currency (up to 66-67 against the dollar) thanks to the tightening of the monetary policy in the US, coupled with upward trend in the price of oil and a slowing Indian economy means that there is more risk than reward in the short-term. GST is causing a working capital problem and this will put further pressure on banks and the real estate sector. It could be the final nail in the coffin for over-leveraged developers. The earnings season is also expected to disappoint, but none of these things seem to be factored in the prices at the moment. So if there is some sort of turmoil leading to a sell-off, then the Nifty could head towards 9,000 level.
Neelkanth Mishra, managing director, Credit Suisse
The economy and the market are only weakly linked at best. In most years, changes in the price-to-earnings multiple impacts the market more. Earnings too are not greatly affected by GDP growth, owing to differences in the constitution of the markets and the economy. PSU banks, for example, are three-fourths of the banking system but only a third of market capitalisation; fast-growing segments such as auto and NBFCs have greater share in the market than in the GDP, and some of these (like airline traffic, financial savings and car sales) are seeing strong growth, which has helped their stocks too. Further, global growth proxies (like metals and energy) have meaningful weight in indices and have done well this year. Comfort on growth outlook has improved sentiment on emerging markets, which has had a positive impact on Indian markets too.