Volatile stock market movements are likely to continue to spook the potential investors, while huge returns enjoyed just a few days ago may not be repeated, HDFC Bank said.
The current stock market valuations reflect the corporate earnings growth expectations more reasonably following the recent correction, the bank said in its latest monthly investment newsletter for its customemers.
The shareholder returns should remain volatile going forward, while historic returns are unlikely to be repeated, the bank said.
The market has just gone through an unprecedented correction after rising sharply through the past 18 months.
The Bombay Stock Exchange's benchmark 30-share Sensex surged to a life-time high of 12,612 on May 10, while more than doubling from nearly 6,000 level in November 2004.
When the Sensex peaked above 12,600 level last month, it was trading at one-year forward P/E of about 20x, making it one of the most expensive markets in the world, the bank said.
According to HDFC Bank, the sharp rally in the recent past has been primarily driven by two factors -- strong earning growth and a re-rating in P/E of Indian companies.
However, the record high level witnessed on May 10, reflected a one-year forward P/E of as high as 18.6x, sharply higher than a ratio of 8.5x on March 31, 2003.
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