Indian equities are set to rebound this year following their decline in recent weeks.
Stock markets could rise by 15 per cent this year after falling by about 8 per cent compared to their levels before demonetisation, according to VK Vijayakumar, the chief investment strategist at Geojit BNP Paribas.
“The market has already discounted the impact of demonetisation on GDP growth and earnings growth,” he said.
Other experts agree there is scope for growth this year.
“We find the valuations of the broader market more reasonable after the recent market correction,” according to Kotak Institutional Equities. “The Indian market has corrected with the biggest fall being seen in the high price to earnings ratio stocks in automobiles, consumer staples and discretionary sectors and real estate and related sectors such as building and construction materials.”
It is forecasting gains of 10 per cent for India’s Nifty 50 index.
But there are events looming that could negatively impact stocks, Kotak warns.
“Europe’s national elections and US’s fiscal, foreign and trade policies can cause mild shocks if their outcomes are different from consensus views.”
Morgan Stanley is also forecasting 15 per cent returns this year compared to losses of 3 per cent in 2015 and 2016.
“India is one of our top emerging market picks,” it said. “India’s macro stability remains in its best shape in several years and policy momentum is the best since 2007. Financial conditions look easy and the inflation trajectory suggests more rate cuts are in the pipeline.”
But Kotak added that interest from foreign investors has declined to a certain extent.
“We notice some disenchantment among foreign investors given growing concerns about earnings downgrades from the government’s demonetisation measure, headwinds for once-favourite sectors such as information technology and pharmaceuticals and possible deterioration in macroeconomic position due to likely lower GDP growth because of the demonetisation impact and higher current account deficit because of higher oil prices and possible fiscal stimulus to counter the demonetisation impact.”
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