Brokerage Kotak Securities does not anticipate any large upside to the Nifty Index in 2024 and expects a time correction in the next six to nine months.
As per its ‘Nifty fair value’ model, it believes the Nifty index is now close to 20 per cent overvalued. “Nifty index looks to be 20% overvalued as per our model after moving up more than 10 per cent in the last two months,” said Anurag Singh of Kotak Securities.
Kotak Securities estimates that Nifty will reach 21,834 by the end of the calendar year 2024, with the current Nifty standing at 21,418. The brokerage expects a period of consolidation in the Indian markets this year due to prevailing rich valuations
” The median pairwise correlations continue to be close to their long-term average. There was a slight uptick in index volatility in December. There were net upgrades to the EPS estimates in December, although the total number of estimate changes was low,” it said in a note.
The brokerage is wary of the absolute return potential of the market from the current levels. It has replaced ITC and Larsen & Toubro (L&T) with Britannia and PSU stock NTPC from its concentrated All-Season portfolio.
The portfolio outperformed the Nifty index with annualised returns of 22.9 per cent versus 20.8% returns delivered by the latter. The December returns of its Concentrated All-Season portfolio were also higher at 10% versus 7.9% given by Nifty.
Kotak’s other portfolios that gave higher annualised returns than Nifty include Broad All Season (22.8%), Broad Fundamental (23.9%), Broad Low Volatility (21.1%), Broad Momentum (24.6%), Concentrated Sentiment (42.6%), Broad Sentiment (28.7%), Concentrated anti-factor (40%), Broad anti-factor (37.9%).
Kotak Securities prefers mega-caps, noting their reasonable valuations and greater immunity in the event of any negative developments in the next few months. They believe the Indian stock market has three distinct markets within it, each with its dynamics and embedded expectations:
The mega-caps are in a bear market, with many large-cap stocks delivering modest positive or moderate negative returns in the past 2-3 years.
The large-cap and high-quality mid-caps are in a bull market, with the weak operating performance in the short term and likely deterioration in fundamentals in the medium term being largely ignored by the market.
Several low-quality mid-caps and small-caps, in general, are in a bubble, with the market attaching unrealistic narratives to many stocks.
What will result in a market correction?
Any market correction will be entirely based on a big change in the market’s expectations of potential returns.
Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd
First Published: Jan 02 2024 | 10:08 AM IST