In a recent report by Emkay Global, analysts have expressed optimism about the Indian stock market’s resilience amidst global turmoil. The strength of the Indian market is attributed to the country’s robust macro-economic stability, which provides a solid foundation for earnings outlook. Seshadri Sen, head of research and strategist at Emkay Global Financial Services, highlighted India’s „fortress balance sheet“ that is resilient across various fronts including public finance, external accounts, banking systems, and corporate leverage. This strength is expected to sustain India’s growth story and limit second-order impacts.
One notable point made in the report is the reduced dependence of Indian equities on overseas or foreign institutional investors (FIIs/FPIs). This reduced reliance is seen as a positive factor that can help the market weather periods of uncertainty. As a strategic move, investors are advised to view any near-term corrections as entry opportunities from a two to three-year perspective. Additionally, the report suggests that sectors like IT and FMCG could be safer havens during market corrections compared to manufacturing and cyclicals.
The current valuation of the Nifty50 index is another key aspect discussed in the report. With the index trading around 21-times price-to-earnings ratio (PER) compared to the long-term average of 19.9x, Sen believes that the current level presents an attractive entry point for investors. Despite this, the brokerage does not anticipate a significant decrease in market valuations in the near future due to various supporting factors such as declining risk premiums, improved earnings quality, and a broader investor base.
When it comes to sectoral investments, the report suggests focusing on Industrials, Materials, and Consumer Durables, which are expected to continue their post-Covid outperformance. The emphasis on manufacturing and capex investments post-pandemic is likely to benefit small and mid-cap stocks, as these sectors are more SMID-heavy. However, Sen also cautions that the extent of outperformance may moderate as valuations adjust. Additionally, the report highlights the potential for a comeback in mass consumption, which could drive earnings growth and upgrades in sectors like FMCG and value retail.
In conclusion, the Emkay Global report paints a positive outlook for the Indian stock market, emphasizing the country’s strong fundamentals and resilience in the face of global challenges. Investors are advised to consider the current market valuations and sectoral trends when making investment decisions, with a focus on long-term growth prospects and sector rotation strategies.