“An interesting trend in the market is the steady up move in India in contrast to the down trend in the U.S. While concerns of potential rising inflation in the U.S. is weighing on the market there, the bold reform initiatives in India and the sustained money flows into the market are imparting resilience to the market. With retail inflation in India remaining much lower than expected ( 1.55 % in July) another rate cut by the MPC is possible soon even though the RBI is cautious in the context of heightened global uncertainty.
Investors have to be vigilant about valuations in this market. Despite the many headwinds, valuations are high. Out of the BSE 500 stocks, 215 are trading at PEs above 50. Largecap valuations, though high, are justified given India’s long-term growth potential. Many midcaps have the support of strong growth. But small caps are excessively valued and, therefore, risky. Investors have to make this distinction.”
