NEW DELHI: With the domestic stock market peaking at the fag end of the ongoing Samvat 2076, sentiment on Dalal Street has shifted from ‘fear’ to ‘greed’, suggests the ETMarkets Diwali Survey among a dozen brokerages.

However, some analysts are not comfortable with the prevailing valuations, as they feel the market is too optimistic with earnings forecasts. That is the main reason why some analysts advise investors to have moderate return expectations in Samvat 2077.

Rusmik Oza of Kotak Securities said the ‘greed’ factor seems to be higher among retail investors, as seen from the outflows from mutual funds, while ‘fear’ seems to be higher among the HNIs. Oza says foreign inflows could continue if central banks and governments continue to offer further stimulus. “That would lead to consistent pressure on the dollar and attract more flows into emerging markets,” he said.

Narendra Solanki, Head of Equity Research at Anand Rathi Shares & Stock Brokers, said the market definitely looks rich in terms of PE multiples and trades at a marginal discount to its five-year average price to book value.

This, he said, was the result of a significant erosion in earnings due to Covid-19, which has shrunken the base (EPS) and pushed earnings multiple (price/EPS) to higher levels.

“Over the next one year, the probability of earnings growth, economic recovery and improvement in the overall business sentiment is higher. As businesses come back to normal, the same would increasingly get reflected in better earnings. By nature, the market is discounting the same,” he said.

For now, Nifty50 is trading at a healthy premium of its long-term average of 18 times one-year forward earnings and the market is factoring in solid earnings growth over 30 per cent, said Binod Modi, Head of Strategy at Reliance Securities.

As such, this analyst is not very hopeful of a sharp upside in Nifty50 even though there are initial signs of green shoots as suggested by key economic indicators. In another Diwali survey, the same set of 12 brokerages suggested targets of up to 47,000 level for Sensex and 14,000 on Nifty50 by next Diwali.

In a low interest rate environment like this, equity valuation could stay elevated, says AK Prabhakar of IDBI Capital Markets. “We need to regularly look for opportunities when stocks correct,” he said.

The market is climbing a wall of worry and there is a fear of missing out in this rally, said Jyoti Roy of Angel Broking. “While the market may look very expensive based on FY21 earnings, it is not so expensive based on FY22 earnings. This, even as valuations on FY22 basis are still 15 per cent higher compared with the average of last five years,” he said.

Ravi Singh, Vice President and Head of Research at Karvy Stock Broking, said Nifty50 valuation on a trailing 12-month basis stands at 31.43 times, which is a record high. The market, he said, is in the ‘greed’ zone and is probably taking into consideration the positive aspects of the current green shoots in the economy after the Covid-19 unlock.

Deepak Jasani of HDFC Securities said the ongoing ‘greed’ could turn into ‘fear’ only if negative triggers play out globally. “Otherwise, greed will continue to play a bigger part even next year,” he said.

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