It has mostly been a one-way street for markets that have moved up sharply since July.<\/p>\n
The front-line indices \u2013 the S&P BSE Sensex and the Nifty50 \u2013 have gained 6.7 per cent and 7.3 per cent, respectively, in the past three months.<\/p>\n
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The rally in mid- and small-caps has been sharper, with both indices surging 14 per cent and 9 per cent, respectively, during this period.<\/p>\n
This sharp run has made analysts at Jefferies cautious.<\/p>\n
They suggest the current uptrend in equities may not last long.<\/p>\n
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The information technology sector (IT), believes Jefferies, remains at significant risk of sell-off if the Nifty was to correct.<\/p>\n
As a tactical strategy, they have moved some of their allocation from the IT sector to staples, expecting the latter to be a defensive bet in the event of a market correction.<\/p>\n
Also, they have replaced Godrej Properties (more volatile) with Macrotech Developers in their model portfolio.<\/p>\n
Here are some key reasons why they have turned cautious on the current rally:<\/p>\n
Bond yield, earnings yield gap:<\/strong> Expensive valuations, wrote Mahesh Nandurkar, managing director at Jefferies, in a report co-authored with Abhinav Sinha, is not a new phenomenon in Indian markets.<\/p>\n However, bond yields and the earnings yield gap exceeding 2 percentage points are making them uncomfortable, particularly when bond yields could move higher, putting further pressure on markets.<\/p>\n \u201cAlso, in the past year, the Nifty has corrected by over 10 per cent thrice from a similar yield gap when the index was around the 18,000 mark.<\/p>\n “We see a strong chance of a repeat, given the clues from the US Federal Reserve (Fed),\u201d read the note from Jefferies.<\/p>\n Global rates on the rise, again:<\/strong> The US 10-year treasury rates are up around 70 basis points month-on-month to 3.25 per cent, with the US dollar index appreciating nearly 4 per cent.<\/p>\n Consequent to this, the US markets have moved within 7 per cent of their year-to-date lows.<\/p>\n Jefferies believes the Fed has much more tightening ahead than priced in since the low unemployment rates are causing inflation to run much higher than the 2-per cent target.<\/p>\n \u201cThe US unemployment rate needs to double from the current 3 per cent, so as to achieve the inflation target, which implies more\/continued rate hikes, and we assume the first quarter of calendar year 2023 exit rate of 4 per cent,\u201d wrote Nandurkar and Sinha.<\/p>\n India\u2019s foreign exchange (Fx) position needs monitoring:<\/strong> India\u2019s trade deficit has trended at record levels recently and the current account deficit is on track to hit a decadal high of 3.5 per cent in 2022-23, which Jefferies believes needs close monitoring.<\/p>\n \u201cThe Fx reserves (including forward cover) are down around $100 billion now, from peak, and import cover has fallen below nine-month levels.<\/p>\n “The gross domestic product deflator has hit a decadal high, implying broad-based inflationary pressures,\u201d said the report.<\/p>\n D\u00e9j\u00e0 vu? What happened in the past three corrections:<\/strong> From its October 2021 peak, the Nifty has had three declines of over 10 per cent, with a total decline of 17 per cent to the June bottom.<\/p>\n Among the larger sectors, automotive, industrial, and fast-moving consumer goods have outperformed, while IT, health care, and materials have underperformed.<\/p>\n \u201cBroadly, banks have been market performers.<\/p>\n “Any potential market correction will likely emanate out of a hawkish stance by the Fed and likely stagflation worries. That could hit the IT sector,\u201d cautions Jefferies.<\/p>\n<\/div>\n[ad_2]\n<\/p>\n News From This Website <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"