Bulls could continue to dominate India’s share markets for the next 12 months, albeit at a slower pace of gains, mentioned worldwide brokerage and analysis firm Morgan Stanley. The present bull industry, which began given that the bottom made in the last week of March 2020, is believed to have more legs when compared to prior such rallies. “There is return dispersion across bull markets making the average return less meaningful. This one is up 106% — the historical average is 284%. While we see further upside in the immediate 12 months, the pace of gain may slow,” Morgan Stanley mentioned in a report. Sensex and Nifty have doubled given that the March 2020 fall and have set fresh all-time highs.
Current rally akin to 2003-2008 bull industry
Over the previous 3 decades, Indian stock markets have witnessed six bull markets, such as the present one. Apart from the 2003-08 bull industry, the typical duration of the other 4 bull markets is 72 weeks. Meanwhile, the present rally is only 64-weeks old but. “Given our view of a likely new profit cycle, the 2003-08 bull market duration may be the template for the ongoing bull market,” the note co-authored by Ridham Desai, Sheela Rathi, and Nayant Parekh mentioned. The share industry rally among April 2003 and January 2008 lasted for 246 weeks (almost 5 years).
While the bulls have been operating the show in stock markets across the world, India’s efficiency has been much better when compared to other emerging markets. However, the outperformance for this bull industry stands at 23% against 52% seen in every of the prior 5 bull markets. This leads analysts at Morgan Stanley to think that India will continue to outperform emerging markets more than the coming months.
Valuations stretched?
Many argue that valuations are stretched for domestic stocks now. The note highlights that value-earnings ratio may not be the appropriate gauge, owing to depressed earnings. “The ongoing bull market started at a similar multiple as historically. The current P/B of 3.6x compares with an average peak of 5.2x,” they mentioned. The P/E ratio, at the commence of the present industry rally, was larger than the typical of the prior bull markets.
The depressed earnings, nevertheless, are not to remain. “Earnings and ROE are depressed and, if we are right about the coming new earnings cycle, fundamentals bear considerable upside. Interestingly, thus far, this is the lowest interest rate regime we have had in a bull market,” the note added.
Sectors to bet on
Among sectors, cyclicals have stolen the show so far, with components, industrials, and customer discretionary amongst the prime-performing sectors. Meanwhile, customer staples have been lagging. Performance of financials has also been weak. Banking on the underperformance, customer discretionary and financials are the prime bets for the next 12 months for Morgan Stanley.