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    10 reasons why bull market should continue on D-Street

    , ETMarkets.com|
    ​Bulls vs Bears
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    ​Bulls vs Bears

    Global brokerage firm Goldman Sachs believes the bull run in global markets will continue despite a near-term blip in the equities following a sharp rise in stocks since March lows. The domestic equity market has rallied over 50 per cent since March 23 due to liquidity measures taken by the government and RBI amid sustained inflows by foreign institutional investors. The Sensex traded 0.24 per cent down on Thursday amid weak global cues.
    However, Goldman Sachs says the rally in Indian stocks will continue. Here are the 10 reasons the brokerage cited for the same:-

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    New investment cycle
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    New investment cycle

    The ‘Hope’ phase – the first part of a new cycle, which usually begins in a recession as investors start to anticipate a recovery, is typically the strongest part of the cycle. That is what Goldman Sachs has been seeing this year.

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    Economic recovery looks durable
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    Economic recovery looks durable

    The vaccine outlook has become clearer and more positive, and the economic benefits for the US appear particularly large due to its leadership in the vaccine race and a worse starting point in terms of virus control. Goldman’s economists now factor into their forecasts the approval of at least one vaccine this autumn, with widespread distribution and positive growth effects felt in the first half of 2021. It believes that a vaccine would accelerate the recovery starting in Q1 2021, particularly in the consumer areas that are highly sensitive to mobility.

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    Earnings revisions turning up
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    Earnings revisions turning up

    Goldman Sachs has recently made upward revisions to their economic forecasts. “This is typically what we see in the early stages of recovery from a bear market. The exception is after recessions when they tend to move higher. Upward revisions could well drive equity markets higher,” it said.

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    Bear market indicator is low
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    Bear market indicator is low

    Its bear market indicator (GSBLBR), which was at elevated level in 2019, is pointing to relatively low risks of a bear market despite very high valuations. However, it believes that high valuations could limit long-term returns for investors. However, Goldman Sachs added that the indicator is indicating double-digit returns over the next 5 years.

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    Policy-induced reduction in tail risks
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    Policy-induced reduction in tail risks

    Policy support remains very supportive for risky assets. There is both a central bank ‘put’-a belief that central banks will be there to provide as much liquidity as is required-and a fiscal ‘put’ as governments have scaled up their willingness to support growth.

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    Equity risk premium has room to fall
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    Equity risk premium has room to fall

    Goldman Sachs believes that we are now entering a new economic cycle which, with moderate growth, inflation and interest rates, may well be as long as the last one (in the US, the longest for 150 years). If this is the case, and strong policy support is reducing the risks of another recession any time soon, then the ERP (equity risk premium) may well decline.

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    Negative real interest rates to help
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    Negative real interest rates to help

    The resumption of zero nominal interest rate policy in the recent past, together with the extended forward guidance, has created an environment of greater negative real interest rates. This should be highly supportive to risk assets in an economic recovery.

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    Other factors
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    Other factors

    From the current extreme lows in bond yields, equities are also likely to outperform in an environment where bond yields rise. Equities also look cheap relative to corporate debt, particularly for strong balance sheet companies (60 per cent of US companies and 80 per cent of European companies have dividend yields above the average corporate bond yield). Goldman Sachs also added that the digital revolution continues to gather pace. “We think this transformation of the economy and stock markets has further to go. These companies could continue to drive valuations and returns in this bull market,” it added.

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