Sanjeev Prasad, head of institutional equities, Kotak Securities, is credited for his out-of-the-box and forthright views on the market. In his latest report, titled “The curious case of all Indian markets”, Prasad questions the optimism of India’s currency and equity markets even as the overall health of the economy is deteriorating.

Prasad says investors need to be wary of the sluggish growth and should expect lower returns in the calendar year.  “We are already building a 23% growth in earnings in FY2019. So, if earnings get cut by 5-7% which is likely, the market would be even more expensive.” He adds that he would be happy with 10% return from the market in the 2018 calendar year.

Prasad says that the bond market seems to be rightly worried about the overall economy, but the currency and equity markets appear to be fairly nonchalant. He says the sharp increase in bond yields in India in the past few weeks reflects the bond market’s concerns about a likely rise in inflation over the next few months and a higher fiscal deficit on account of higher government borrowing.

In the normal course, he says, the moves in the bond markets should signal to investors a drop in earnings, but that has not been the case so far. In fact, the Indian market’s 12-month forward multiple has been quite steady over the past few months despite the steep increase in bond yields.

Prasad suggests that the continued strength of the Indian equity market could be due to “the very high confidence” of investors on earnings recovery, which could offset the weaker macro-economic factors, or because they are “simply willing to overlook these factors based on some misguided view about earnings and macro-economic factors being irrelevant” to the equity market.

He also sees that the general euphoria in global markets rubbing off on India. But he points out that the other major economies are seeing strong signs of economic revival, whereas India’s macro conditions have deteriorated significantly. The report says India’s GDP growth is likely to slip to 3.7% in FY18 without accounting for divestment revenues.

Prasad is respected in the market for his insights. He was among the earliest analysts to suggest a buy on Reliance Industries in early 2016 when no major fund house had the stock in their portfolio or wanted to buy it. Reliance, the most valuable stock by market capitalisation, has since returned over 40%.