Emkay Global on Indian stock markets outlook: The Indian stock market is expected to emerge largely unscathed from the global turmoil, analysts at Emkay Global said on Friday.
The strength emerges from India’s strong macro-economic stability, providing support to the earnings outlook.
“India has a fortress balance sheet which is bullet-proof on all fronts—public finance, external account, banking system and corporate leverage. This keeps India’s growth story (macro and earnings) more durable and limits the second-order impact,” Seshadri Sen, head of research and strategist at Emkay Global Financial Services said in his ‘India Strategy’ report.
The Indian equities market, he added, has reduced dependence on overseas or foreign institutional/portfolio investors (FIIs/FPIs) which should help ride out this period of uncertainty.
As a strategy, the report said investors could use any near-term correction, on the back of the global risk-off, political instability, regulatory risks, and rich valuations, as an entry opportunity from two-three years’ perspective.
IT and FMCG, it said, could be used as the “best places” to save oneself from any correction as these sectors could correct less than manufacturing and cyclicals.
Nifty50’s current valuation
At present, the Nifty50 index is hovering around 21-times price-to-earnings ratio (PER) as against the long-term average (LTA) of 19.9x — a level, Sen believes, is attractive enough to enter the markets.
The brokerage, however, doesn’t expect the market to become too cheap anytime soon as the premium valuations are supported by multiple counts.
“The country’s risk premium has declined by 60bps over the last five years. Growth predictability is better with the quality of earnings improving (as reflected in better return ratios and cash flows for most sectors). The broadening of India’s investor base and reduced dependence on FPIs has also pushed up valuations – a trend we do not see reversing soon,” the brokerage note said.
Where to bet? Which sectors to invest in?
According to Seshadri Sen, India’s growth and earnings outlook underwent a long-term pivot post the Covid-19 pandemic, when the government invested heavily in manufacturing and capex.
“Thus, we expect Industrials, Materials, and Consumer Durables to continue their post-Covid outperformance. This should also lead to the small and mid-cap stocks outperforming as the manufacturing sector is more SMID-heavy,” he said in the note.
Sen, however, cautioned that the “extent of outperformance” may moderate a little a large part of the relative strength of manufacturing and SMID is reflected in the valuations.
“Moreover, mass consumption should make a comeback and that could drive earnings growth and upgrades across FMCG and value retail. The long-term trend will continue, but expect more sector rotation and inter-sector volatility, going forward,” he added.
First Published: Aug 09 2024 | 9:18 AM IST
