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Is There Any Steam Left In The Current Market Rally?

Jigar Shah and Ambareesh Baliga on whether one should buy into the dip

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Published 4 years ago on Sep 13, 2016 Read

Jigar Shah, CEO, Maybank Kim Eng Securities India

I think there is more room to this rally. Valuations are reasonable if one factors the growth ahead. We expect Nifty to experience strong improvement from second half of FY17 as the normal monsoon will boost demand in rural and farm sector. During FY05-10, Nifty's EPS grew at 12.3% annually and in the subsequent five years it grew at 5.3% annually. Now we expect growth to kick in. Bloomberg consensus suggests Nifty EPS growing at 20% annually over FY16-18. We believe this is achievable  because barring metal, mining and state-owned  banks, most other sectors are showing signs of a recovery. In the best case, Nifty has traded at a 40% premium to its average in the past. If we draw parallels to that, Nifty can reach 10,474 on 18x FY18 earnings. Even in base case, our Nifty target comes to 9,312 at 16x FY18 earnings.

Ambareesh Baliga, independent market analyst

When the market is in a long-term bull market, there are healthy corrections in between which ensure a wider participation and shake out the weaker hands. Nifty had seen a 30% upmove from the Budget day lows without a meaningful correction. However, last week it failed to touch the coveted 9000 level in spite of showing promising signs of crossing that mark sooner than later. With speculation surrounding Fed rate taking centrestage until it meets on September 21st, Nifty will find it difficult to cross that mark as of now. Another bit of worry is the reason behind liquidity flows — it’s due to lack of other investment opportunities and the recent outperformance of equity as an asset class. This is a core reason for a possible bubble formation. Given the increasing uncertainty, I will not be surprised to see an eventual correction to 8,200-8,250 before a sustainable upmove.

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