Having rallied around 9 per cent in July, the Nifty is showing no signs of taking a breather as it zoomed past the key resistance zone around the 17,500 mark on Monday.
“Current valuations provide a good entry point for long-term investors. At current levels, stock picking and sector rotation would be keys to achieving outperformance,” domestic brokerage Axis Securities said in its monthly strategy report.
Stating that the calculation of its India Valuation Index is based on four fundamental market parameters – 12m fwd PE, 12m fwd PB, Bond Equity Earnings Yield Ratio, and Mcap to GDP Ratio – the brokerage said in terms of m-cap to GDP, India is less expensive than the US market.
Long-term bond yields have gone up 50 bps in the last four months, factoring in the rate hike expectation by the RBI. After the recent correction, some cool-off was seen in the Bond Equity Earnings Yield Ratio (BEER).
However, it is now trading above its long-term average, indicating a slightly expensive equity market at current levels as against the bond market, the brokerage said.
The Buffett Indicator or total market cap to GDP ratio is trading at 110%, above its long-term average (rebased after FY22 GDP of Rs 232 trillion released by the government on 1st February 2022).
“However, at FY23 projected nominal GDP levels, m-cap/GDP ratio translates into 99% (fairly valued). FY23 GDP assumption is Rs 258 trillion,” it said.
Axis said with a positive earnings momentum in the current cycle, we are likely to see higher levels of m-cap to GDP ratio in the upcoming quarters.
Analysts from the brokerage house are overweight on domestic themes ahead of the upcoming festive season. The profitability of Indian corporates is likely to shift from commodity producers to commodity consumers, they said, while maintaining an overweight stance on equity.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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