Mumbai: Domestic market is over-valued and there can be a "double-digits correction" in the first half of 2019, but a stable government after the hustings can help push the markets up in the second half, a foreign brokerage said,
The Wall Street brokerage sees "little reason to be bullish on the domestic market", and accordingly pegs the Nifty closing the year at 11,300 points, which is a paltry 4.6 percent higher than Tuesday's close. It didn't offer a Sensex target though.
"It is going to be a tough year ahead. Investors have made lots of money through expansion in multiples which are very high now," Sanjay Mookim, a research analyst at Bank of America Merrill Lynch, told reporters here Tuesday.
"There is little reason to be bullish about the domestic market," he said, adding the only sector that can work for investors is banking, as the lenders come out of the dud assets problem.
He also said along with the high valuations, we also have to factor in the global headwinds.
When asked what his advice to investors, Mookim said they should "stay away" as domestic stocks aren't cheap and so should look for opportunities outside equities.
One is "devoid of ideas" to invest in the current situation, he averred, but maintained that the macro environment has not turned bad.
He said there are very few large caps which are available at reasonable price, but was quick to note that while the massive correction in the mid-caps has created some space, the depressed sentiment in the run-up to general elections will leave with little room for growth.
The investor sentiment will be hit in the run-up to the hustings in summer as the Opposition plays its part of pointing to the present government's follies, Mookim said.
The speculated move of providing income support to farmers comes too late and may not deliver the intended political dividends, he said, adding it will also be difficult to find the right beneficiaries.
On farm loan waivers, he doubted if such a move will be helpful politically as the number of landless cultivators is higher than the landed ones who benefit from such a move.
The decline in crude prices has already been factored in by investors and the slide is unlikely to lead to a surge in stock prices, he said.
In an opinion contrary to many analysts, Mookim said the claim of recovery in the capex cycle is incorrect as the tepid uptick being reported is largely due to the low base. And he bases his view from the interactions with the industry wherein none of the corporates he met with are bullish about investing even in the medium-term.