MUMBAI: The new year has turned slightly disappointing as the markets failed to carry forward their winning momentum amidst heavy selling pressure at higher levels.
Market experts have also asked investors to temper down their expectations for 2018 citing stretched valuations, rise in crude oil prices, higher fiscal deficit and volatile foreign portfolio investments.
After witnessing a steep fall from their record high on the first trading session of 2018, both Sensex and Nifty are finding it difficult to rally higher. “We expect earnings growth to be 19 per cent as against the consensus estimate of 25 per cent which will result in moderation of expectations during the year. In the current bull run, we have not yet entered the phase where the actual earnings outpace estimated earnings resulting in positive surprise on earnings, which was observed during the FY05-FY07 phase. In this context, we believe it is unlikely that growth will surprise on the upside in CY18 and, against the backdrop of stretched valuations and evolving risks, equity returns could be moderate,” said analysts at ICICI Securities.
According to Sanjeev Prasad, MD at Kotak, the markets have already factored in a strong earnings growth for FY19 and the performance of markets in 2018 would depend a lot on India Inc’s earnings meeting street expectation.
“The full valuations of the market at 18.8 time its 12-month forward earnings largely factor in the 23 per cent growth in net profits for FY19 projected by us. We are somewhat confident about FY20 earnings, but see risks to multiples if domestic macro conditions were to worsen on higher inflation and crude oil prices and global macro conditions were to turn less favorable due to an expected slowdown in China,” he added.