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Current Affairs

Nomura degrades Indian equities

Date: 27 October 2021 Tags: Miscellaneous

Issue

Nomura has downgraded Indian equities from ‘overweight’ to ‘neutral’ due to growing concerns over expensive equity valuations.

 

Background

It has been felt that Indian equities could pose risks in the future. It has recommended allocation to China and other ASEAN countries.

 

Details

More than 77 per cent of domestic stocks in share market are higher than pre-pandemic or post 2018 average valuations. This is an indication that the profits are already stretched.

 

Risks faced by India

Elevated commodity prices, sticky core inflation and tentative signs of slowdown in demand are some of the risks faced by India.

 

Impact

  • More such valuation by firms could result in outflow of funds going forward. Many investors may look to exit the market.

  • FPI inflows are already declining slowly. The data for October says that inflow of Rs 13,154 crore was invested in domestic equities in September and the month of October has witnessed a net outflow of Rs 2,331 crore till date.

  • The Sensex has declined by over 1,400 points or 2.3 per cent after witnessing an all-time high of 62,245 points.

 

Equity market

The place where shares and stocks of companies are traded is known as equity market. They are traded either over the counter or at stock exchanges. 

 

Significance of equity

They provide capital raising, liquidity, and investment options for different publicly listed firms and companies.