According to equity strategists polled by Reuters, predicts a lower-than-expected increase in India's equity market this year, primarily due to the anticipation of higher interest rates. However, they also suggested that the possibility of a correction in the short term is unlikely.
Against a better economic growth outlook for this year and next compared to many major rivals, the benchmark BSE Sensex Index gained over 4% in 2022, making it one of the best performers among peers that mostly saw double-digit losses.
But the trend reversed late last year, with the market down around 2% so far in 2023, largely unmoved by the reopening of China's economy and an improved global economic outlook, the report said.
Uncertainties over a sharp sell-off in conglomerate Adani Group shares, after a critical report by U.S. short-seller Hindenburg Research, have contributed to capital outflows from the Mumbai market.
While investor sentiment is expected to improve over the coming months, a sharp rally appears unlikely, partly due to renewed expectations of higher interest rates in India and elsewhere, it added.
Out of 25 analysts polled by Reuters, 17 said the chances of a correction in the next three months were low. A majority of respondents to an extra question in the latest poll, 19 of 22, said allegations made against the Adani Group had little to no impact on investor confidence in Indian corporate governance.
The median forecast of 28 equity strategists showed the Sensex gaining around 5% from Wednesday's close of 59,744.98 to reach 62,610 by mid-year, a downgrade from the 65,000 predicted in November. It was then expected to gain another 4% to hit 65,000 by year's end, the February 10–22 poll found.
The Nifty 50 index was forecast to gain about 5.2% from Wednesday's close of 17,544.30 to 18,450 by mid-2023, and reach 19,000 by end-2023, lower than the 19,500 and 20,500 points predicted three months ago.
"Since October, Indian equities have seen their sharpest underperformance to EM (emerging market) peers in three years. This has shrunk the valuation premium to emerging equity peers, but not enough to bring foreign investors back," said Rajat Agarwal, Asia equity strategist at Societe Generale to Reuters.
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