Very little value in most parts of market after recent run-up in mega-cap names, says brokerage

New Delhi: There is very little value in the market across the capitalisation spectrum after the recent run-up in the mega-cap. names, the last bastion of value in the market until recently, says a report by Kotak Institutional Equities.

However, incremental news will likely be positive and may sustain market exuberance and frothy valuations.

“In our view, it would be best to enter 2024 with low return expectations from the market,” the report said.

“2024 may be tricky for investing given the conflict between fundamentals (value) and sentiment (price). The year could finally see a convergence between price and value or a continued large disconnect between price and value, the case for the past 6-9 months,” it added.

“We find very little value in most parts of the market after the recent run-up in mega-cap. stocks, the last bastion of value in the market until recently. We have been quite cautious on the mid-cap. and small-cap. stocks for the past 3-4 months and have been positive on the large-cap. and mega-cap. names. The Indian market is richly valued both on a top-down and bottom-up basis,” it said.

“We expect the net profits of the Nifty-50 Index to grow 18 per cent in FY2024 and 11 per cent in FY2025 We note that the recent upgrade in FY2024E EPS of Nifty-50 Index has been primarily driven by OMCs. We see limited scope for earnings upgrades in the context of our benign profitability and volume assumptions across sectors,” the report said.

“Portfolio construction is clearly a challenge in the context of (1) unfavorable reward-risk balance on fundamentals across sectors and stocks and (2) unflinching exuberance among investors, as can be seen in large positive inflows into the market by FPIs in the past two months and by domestic investors for the past several months propelled by enthusiastic retail investors,” it said.

“In our view, it would be best to avoid sectors and companies with the biggest distortion in price-value proposition irrespective of incremental developments. It would appear that investors are taking their cues from incremental developments and events and ignoring the fact that absolute valuations may already be pricing in the positive developments (real or even purported). We find this most prevalent in the automobiles and components, electric utilities and IT services sectors,” it added.