Economists at the Reserve Bank of India (RBI) also said that the monetary and credit conditions are conducive for a sustainable economic recovery. India’s equity indices have outperformed their peers so far this year as the country made a stronger comeback from the second Covid wave – and more quickly – than initially anticipated. “The spectacular gains have raised concerns over excessive valuations with several global financial services firms cautious on Indian equities,” it said. reserve Bank of IndiaIts latest monthly bulletin is written by its economists.
wall Street Financial firms and major global brokerages, such as Goldman Sachs, morgan stanley, nomura, CLSA And UBS, lately, has been cautious about the prospects of Indian equities, highlighting downside risks to investment returns largely due to increased valuations and potential inflationary pressures.
Traditional valuation gauges, such as the price-to-book price ratio, the price-to-earnings ratio and the market capitalization to GDP ratio, remained above their historical averages. The yield gap, or the gap between the BSE Sensex’s 10-year G-Sec yield and the 12-month forward earnings yield, at 2.47%, has surpassed its historical long-term average of 1.65%.
Despite widespread concerns over valuations, it is noteworthy that promoters’ percentage stake in companies listed on the National Stock Exchange (NSE) increased by nearly 50 basis points from 44.42% at the end of September to 44.42% at the end of June.
One basis point is 0.01%.
“Empirical research shows a positive relationship between promoter ownership and firm value,” the report said. “The ever-increasing stake of promoters reflects confidence on the part of promoters about their business prospects and comfort with the ongoing valuation.”
A significant drop in fresh infections and rapid progress with vaccination have brightened the chances of recovery.
“The Indian economy is clearly isolating itself from the global situation, which is affected by supply disruptions, stubborn inflation and aggravation of infections in different parts of the world,” the RBI report said.
Indicators of aggregate demand have improved in several sectors. Reflecting improved economic activity and movement of goods transport, the fiscal position in the first half indicates that the tax buoyancy helped the Centre’s fiscal deficit to be contained at 35% of the budget estimates, despite higher expenditure.
The record production of horticultural crops should increase the availability of vegetables and fruits.
“Overall monetary and credit conditions remain favorable for a sustainable economic recovery,” the report said.
In the credit segment of the financial markets, there has been a steady improvement in transmission of lending and deposit rates since the introduction of the external benchmark system in October 2019.
RBI said transmission has improved significantly after March 2020 due to abundant additional liquidity.