'El Nino is market's main near-term risk'

The Indian market may undergo a time correction following the recent period of strong performance, said Manishi Raychaudhuri, the Asia Pacific head of equity research, and Asian equity strategist at BNP Paribas. In an interview, Raychaudhuri said the primary short-term risk to equity markets stems from the potential impact of El Nino on the monsoon season

- Ujjval Jauhari

Edited excerpts:

Do you expect further momentum in the Indian equity markets, that are nearing record highs?

For the near term, we expect Indian markets to undergo some time correction. Over the long term, we are more confident about India’s outperformance relative to other Asian markets. While India’s price-to-earnings (P/E) valuation premium declined relative to Asia ex-Japan to the long-term average level of 40% in April, sharp outperformance in the second quarter has elevated the market’s relative P/E premium back to 56%—halfway to the one standard deviation higher mark. India’s price-to-book premium is also a standard deviation higher than the long-term mean. We think a decline in relative valuations would make the market more attractive for investors, especially for foreigners. A likely route to decline in relative valuations could be a sideways movement by Indian equities while other markets, particularly those in North Asia, rerate.

What could be the fresh triggers and downside risks for the market?