Stable Lok Sabha election’2024 outcomes and favorable pre-budget announcements are among the factors that could boost the markets, feels Anshul Arzare, MD and CEO of Yes Securities. However Domestic or Global slowdown, higher inflation impacting consumption and corporate earnings or election results deviating from expectations could destabilize markets feels Arzare. Edited excerpts
- Markets after scaling highs, however have given away some part of the gains? Will the levels sustain? What are the downside risks?
Indian equity markets are soaring, driven by strong domestic investments via SIPs and mutual funds. Sustainability depends on continued domestic investment and economic growth, supported by rising disposable incomes. Stable election outcomes and favorable pre-budget announcements could further boost the markets.\
Downside risks include a slowdown in the global or domestic economy, potential conflicts, rising inflation eroding consumer spending and corporate profits, and election results that do not yield a majority or deviate significantly from expectations, which could destabilize markets.
2. Have Q4 results met your expectations? What sectors have outperformed, and which have been laggards?
Q4 results have largely met expectations, with notable outperformance in the Auto, Energy, Realty, and PSU sectors, especially banks. Conversely, IT, Private Banks, FMCG, and Media have lagged due to inflationary pressures and reduced discretionary spending. Private banks have experienced slowed credit growth and potential pressure on Net Interest Margins (NIMs) due to insufficient deposit growth.
3. View on Nifty valuations and have there been adequate earnings upgrades to support upside?
Nifty valuations are at all-time highs, deemed “expensive” due to significant re-rating across all market segments. Earnings upgrades in sectors like infrastructure, energy, and capital goods have been driven by margin expansions and government public capex. However, high overall valuations require continuous earnings growth across various sectors to be justified.
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Earnings remain strong, with expectations of high single-digit to double-digit compound annual growth rates for the Nifty over the next few years. Operating leverage delta in most sectors will further support earnings growth in the upcoming financial year.
4. Views on FII inflows? Will investments return to India?
FIIs have not been the dominant force in the Indian stock market recently, with domestic institutional investors playing a larger role. The return of FII investments to India will depend on global economic conditions, India’s economic performance, and political stability. However, we are very bullish on India’s growth story and believe the upcoming two decades will position India as a central jewel in the global economy. Positive policy measures and strong economic growth prospects could attract more FII inflows. The fundamentals of the Indian markets are stronger than their peers in emerging markets, suggesting sustained flows into Indian equities. The exact quantum of these flows will depend on the pace and magnitude of US interest rate cuts, relative valuations of emerging market equities, and expected earnings growth.
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5. How is India placed among other emerging markets and China?
India is outperforming other emerging markets, including China, due to robust domestic investment flows and economic resilience. While China’s stock valuations have hit historic lows due to a property-market slowdown, trade frictions, and policy changes, India’s stocks are near historic highs. Despite tight monetary policy and global trade challenges, India remains the world’s fastest-growing major economy, on track to become the third-largest by 2027. High stock valuations in India reflect continued investor confidence, whereas China’s market struggles with consumer retrenchment and economic headwinds.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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Published: 31 May 2024, 05:48 PM IST
