CLSA And Goldman Say Indian Stocks May Be Near A Peak

As Indian equity benchmarks have more than doubled since their multi-year lows in March, a peak may be nearer, according to CLSA and Goldman Sachs. Both, however, don’t foresee the onset of a bear market.

CLSA’s proprietary bull-bear index, which uses about 20 indicators—like absolute and relative valuations, volatility, market breadth, among others—to quantify various aspects of investor sentiment, rose to a 15-year high a few days ago, suggesting peak bullish sentiment.

“This coinciding with peak valuations of the Nifty on trailing and forward multiples as well as happening during the January-March quarter, make us worry if we’re nearing an important peak on the Nifty,” the brokerage said in a note.

That apart, the first three months of any year have the highest likelihood for a market peak, according to CLSA. Nine of the 18 important market peaks over the last three decades, the brokerage said, have occurred during this period.

Indian equities rose to a record high on Jan. 21, with the S&P BSE Sensex scaling the 50,000-mark within 10 months of falling to a six-year low of 25,638 in March 2020. Foreign portfolio investors have ploughed more than Rs 1 lakh crore into Indian stocks since November as the economy opened up, Covid-19 infections started to taper and vaccinations started worldwide.

“Nifty is already at a record trailing and forward PE multiple but many investors argue that easy liquidity and depressed interest rates make historical valuation benchmarks less relevant,” the CLSA note said. The Nifty’s 12-month forward price-to-earnings multiple is at a 44% premium to its 15-year average, almost an all-time high, it said.

Goldman Sachs said the risk of a market correction exists, albeit without a bear market inflection. “Our bull/bear market indicator, designed to signal major inflection points, is at relatively neutral levels suggesting that the risks of a bear market over the next year are still fairly low,” it said in a note.

These are “relatively early stages” of a bull market, it said, anticipating a global profit growth of 35% this year to start the next “growth” phase.