India’s benchmark Nifty may have conquered the 10,000 mark this week but markets don’t appear overheated, said brokerage CLSA. In a note released, Mahesh Nandurkar, India Strategist at CLSA, says that the Nifty valuations in US dollar terms are 8% shy of the peak valuations reached a decade ago and the market capitalisation to gross domestic product ratio is reasonable at 90% as against a peak of 150% in January 2008.
Moreover, the outperformance so far has come on the back of high quality stocks so there has been no irrational exuberance as yet, said Nandurkar.
On Wednesday, the Nifty crossed the 10,000 level for the first time ever. The following day , the index again closed above the five-figure mark and even touched 10,100 level. The rise has been led primarily by a few blue chip stocks such as Housing Development Finance Corporation, HDFC Bank and Reliance Industries. The index saw bouts of profit booking at higher levels both on Wednesday and Thursda . On Friday, the Nifty fell as much as 0.8% and the Sensex was down 0.9% during the day but gains in HDFC pulled them off lows. The Sensex ended down 0.2% at 32,309.88 and the Nifty fell 0.1% at 10,014.50.
Strong domestic flows are giving confidence to market participants about the continuation of the rally even as valuations remain high at about 19 times based on FY18 earnings, and earnings growth is missing so far.
So far this year, the Sensex and the Nifty have gained 21.3% and 22.3%, respectively. In comparison, the MSCI Emerging Market index has gained about 24%.
Economic parameters are also not showing signs of overheating. Other parameters also remain supportive.