Little value in Indian market, most stocks overvalued: Kotak Institutional Equities

Kotak Institutional Equities in its latest note has mentioned that it finds little value in the Indian market as most sectors and stocks are overvalued. This overvaluation increases inversely with market capitalisation, quality, and risk.

Indian market overvaled

As per Kotak Institutional Equities, many PSU stocks trade at high multiples as they depend on optimistic volume and profitability assumptions. The report further added that, while a significant BJP victory might prolong high valuations in certain sectors like automobiles, capital goods, and PSUs, it is doubtful that the expectations will materialise.

In its May 31st report, Kotak called the Indian market, a mix of "rightful optimism and mistaken euphoria." The brokerage said that parts of the market rightfully reflect the strength of the Indian economy, however, others show "extreme euphoria based on unfounded narratives."

In the report, the brokerage categorises the market into three parts. Sectors such as financials are trading at reasonable valuations; consumer, IT services, and pharmaceuticals at full-to-rich valuations; and automobiles, capital goods, and PSUs at euphoric valuations.

The report also noted that the volatility index has been lower than previous election periods, indicating reduced uncertainty among investors.

Kotak also expects the new government to persist with its economic agenda of development, growth, and liberalization and prioritize investment-led growth, aided by the recent substantial transfer of RBI surplus, potentially increasing capex compared to the interim budget.

It anticipates continued government focus on key sectors like affordable healthcare and housing, energy transition, infrastructure development (including defense, railways, and roads), and manufacturing.

Most of the exit polls on Saturday predicted that Prime Minister Narendra Modi will retain power for a third straight term, with BJP-led NDA winning anywhere between 350-401 seats.

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