Capital market direction to depend on corporate earnings, budget in 2022: Kotak Mahindra AMC

“Corporate profitability is critical for markets. We continue to have a view of marginal under-weight on small and mid-caps because of their valuation and marginal over-weight on large caps. It’s time to be neutral to equity as an asset, as it is fairly priced,” Kotak Mahindra AMC group president Nilesh Shah said.

Morgan Stanley also downgraded Indian stocks to equal-weight from overweight, a similar move by Nomura earlier this week.

Shah said the good sign is that corporate earnings have started rising which had been going through a downhill since 2011. The Nifty Earning Per Share for FY22 is estimated at Rs 729 against Rs 542 in FY21 and Rs 874 in FY23.

“India continued to outperform to such an extent that our weight in the MSCI Emerging Market Index moved from 8 per cent to 12 per cent. This prompted some foreign portfolio investors (FPIs) to book profits,” he said.

Shah said huge participation from retail investors has infused a balance in the market despite heavy sell-off by FPIs.

Market cap to GDP ratio is at 112 per cent against the historical average of 76 per cent. It looks a little bit high, but compared to the global market cap to GDP ratio of 138 per cent, this looks reasonably priced, he said.

“Looking at various high frequency indicators, 19 out of 22 indicators are now showing positive momentum and only three indicators show negative momentum. It’s fair to say that overall, the economy has picked up momentum and we are seeing a V-shaped recovery in many segments and a K-shaped recovery in few segments,” the AMC said.

Fortunately for India, even with the Omicron variant of coronavirus, active cases have remained below one lakh. Business activity is now above the pre-pandemic level and this is reflected in the business resumption index touching 114.9 from a bottom of 63.2 in the second wave, the company said in its outlook note.