3 Reasons you must curb high expectations in 2015

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<ul><li><p>Reasons you must curb </p><p>high expectations in 2015 3 </p></li><li><p>What a year 2014 was </p><p>for the stock markets! </p></li><li><p>The Sensex jumped a </p><p>whopping 30% last year! </p></li><li><p>Naturally, optimism is high about the </p><p>stock markets performance in 2015. </p></li><li><p>Especially since the economy seems to </p><p>be on the mend and the government </p><p>continues its reform agenda. </p></li><li><p>However, analysts advise investors to </p><p>tone down their expectations of a high </p><p>market return this year. This is especially </p><p>so in the next few months. </p></li><li><p>Here are THREE </p><p>reasons why- </p></li><li><p>#1 High valuations </p></li><li><p>Share prices rose significantly in the recent past in anticipation of an </p><p>improvement in corporate profits and economy. As a result, stocks </p><p>currently have high valuations. </p><p>This is measured by the Price to Earnings (PE) ratio, when the stock </p><p>price is divided by the companys earnings per share. It shows how </p><p>much an investor is paying for every rupee of profit earned by the </p><p>company. </p><p>#1 High valuations </p></li><li><p>The one year-forward PE is currently estimated at just over 16 times. </p><p>This is the highest it has been since January 2011 and expensive. We </p><p>find valuations of quality stocks in high-growth sectors quite expensive </p><p>and see risks of downgrades to earnings in case of certain sectors such </p><p>as automobiles and industrials if economic recovery is weaker than our </p><p>expectations, according to a Kotak Securities report. </p><p>#1 High valuations (Contd.) </p></li><li><p>#2 Positive factors discounted </p></li><li><p>Todays share price is a reflection of tomorrows growth. </p><p>Indian markets have already discounted a slew of positive factors like a </p><p>cut in interest rates or better economic growth prospects. This could </p><p>limit the bull-trend in the near future. Only a higher-than-expected rate </p><p>cut could set the markets on fire. </p><p>#2 Positive factors discounted </p></li><li><p>However, the chance of a large rate cut is unlikely, especially </p><p>considering the RBIs wariness. The rate cut also depends on factors </p><p>like rupee-dollar movement, global crude oil prices, improvement in </p><p>exports and domestic inflation. </p><p>Moreover, the Federal Reserve plans to increase its interest rates in the </p><p>US. This could negatively affect Indian markets. In anticipation of such </p><p>a move, the RBI could very well prefer to take a cautious stand. </p><p>#2 Positive factors discounted </p><p>(Contd.) </p></li><li><p>#3 Government Reforms </p></li><li><p>The Narendra Modi-led government is one reason for the markets bull-</p><p>run. It announced a slew of reform measures at timely intervals last </p><p>year, cheering the markets. Major economic reforms could be stalled as </p><p>the government does not have majority in both houses of Parliament. </p><p>However, reforms are not the only factor concerning markets. </p><p>#3 Government Reforms </p></li><li><p>The governments fiscal deficit is still a big issue. This is the amount by </p><p>which the government spends more than it earns. A high fiscal deficit is </p><p>bad for the economy. </p><p>The government, in its maiden budget, targeted a fiscal deficit of 4.1% </p><p>of the GDP or Gross Domestic Product a measure of the economy. </p><p>However, reports suggest that the government has already touched </p><p>99% of this amount. This throws doubts about the ability to meet its </p><p>target of 4.1%. If it overshoots the target significantly, markets may not </p><p>take it kindly. </p><p>#3 Government Reforms (Contd.) </p></li><li><p>15.7% The net profit growth of the 50 companies that form the NSE Nifty is </p><p>expected to grow 15.7% in FY2016 and 16.4% in FY2017, according to </p><p>a Kotak report. </p><p>This is much higher than the 5.7% expected in FY2015. Real estate is </p><p>expected to lead the Nifty companies with a 43.4% growth in FY16, </p><p>followed by auto (33%), cement (28.4%) and industrials (32.7%). </p><p>A number to remember- </p><p>Click here to read more. </p></li><li><p>Get eBooks Website </p><p>Thank You! </p><p>Dont forget to follow Kotak Securities on SlideShare to get regular updates! </p><p>DEMAT Account </p></li><li><p>Disclaimer: </p><p> Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com . Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, OTC INB 200808136, MCXSX INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164 and PMS INP000000258. NSDL: IN-DP-NSDL-23-97. 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