“Reserve Bank of India (RBI) is clearly very cautious on non-performing assets (NPAs) – what has happened over the last six months is that while there has been a lot of pain, businesses have cleaned out very aggressively,” said Aditya Narain, Head of Research, Institutional Equities at Edelweiss Securities.

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“To that extent, fundamentally, our view is that you are not going to see the kind of pain that the RBI is expecting,” he said.

“The disconnect that you are having between a very well valued market and earnings spectrum that is looking much better than it has for many years and a real economy that is still struggling a little bit, in my view, this is something that you will spend the next year reconciling with. So you cannot have these sustained disconnects for an extended period of time,” he said.

He believes the markets will potentially come off a little bit, the economy will probably get a little bit of a kick-up from where it is at this point in time and earnings will provide a good comfortable backdrop to be generally comfortable on the markets from a more medium-term perspective.

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(Edited by : Abhishek Jha)