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Informist, Tuesday, Mar. 4, 2025

 

MUMBAI – Kotak Institutional Equities has said that despite the Nifty 50 falling close to its 10-year average, its valuation is "misleading" as there is a wide disparity when it comes to valuations of specific stocks and contribution of each company to overall profits. Considering this, the brokerage cautioned that most of the market continues to be overvalued. 

 

"We do not find much value in the market despite the severe market correction. Most parts of the market are expensive on an absolute basis or on a historical basis...," Kotak Equities said in a report. It said that most stocks in sectors such as consumption, investment, information technology, and pharmaceutical are trading at fair-to-full valuations. Banks and non-banking financial companies are the only ones trading at resonable valuations, it said.

 

The brokerage pointed out that stocks with a low price-to-earnings ratio are expected to contribute almost 40% to the net profit of Nifty 50 companies in 2025-26 (Apr-Mar). This disparity is among the reasons behind Kotak Equities raising alarm over using the valuation of headline indices as a metric to assess investment strategy.   

 

The brokerage said some of the 'narrative' stocks are trading at "unfathomable" valuations despite seeing a 30-50?ll in stock prices in the past few months. It cautioned that investors waiting for a revival in such stocks might be disappointed.

 

"Investors waiting for a revival in 'narratives' and a rebound in 'narrative' stocks may want to note the following: (1) the cat may be already dead, (2) the cat will likely be dead if it is dropped from a sufficient height (despite a cat's fabled nine lives) and (3) the image will be too ghastly to imagine," Kotak Equities said.

 

It said that assessing flows to figure out the market's bottom would be futile. It raised alarms that investors were focusing on retail inflows but not enough on business models and valuations of companies. "Flows have proven (again) to be absolutely useless in figuring out the peak of the market and the subsequent correction (retail inflows into domestic mutual funds have continued unabated, and they will prove useless in predicting the market bottom," it said.  End

 

Reported by Anshul Chouhdhary

Edited by Avishek Dutta

 

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