Indian benchmark indices BSE Sensex and NSE Nifty 50 have touched new highs despite global and domestic headwinds. Domestic markets have turned out to be more resilient compared to not just western markets, but also Emerging Markets. One of the reasons for this resilience is that global flows continue to remain very strong, according to Unmesh Sharma, Head of Institutional Equities, HDFC Securities. On top of all this, India stands out because external vulnerability is quite weak compared to what one would have seen in 2013. Another big sign of maturity in the market has been that the domestic flows have been very strong, Sharma said, adding that despite $50 billion worth of outflow from Indian markets, benchmark indices have scaled fresh record highs.
India ‘Triton among Minnows’ (Andho me Kaana Raja)
In India, inflation started rising in November last year, meaning it did not wait for the Ukraine-Russia war to spike. The base effect of this has started to come through now. “Despite all the warnings from economists, analysts, Fed, and experts, the market is perceiving that it will be a smooth landing for India as inflation has started to come off, job data remains strong, no real major quantitative tightening has happened. A terminal rate of 5% in the US is well priced in.” Sharma said.
In the Emerging Markets basket, India has a weight of around 14.5 to 15%. China is twice the weight and is dealing with geopolitical tensions and lockdowns. Taiwan, which is another economy with a large weight in the basket, is also dealing with geopolitical tensions. In such a situation, India stands out as a preferable investment destination. “External vulnerabilities are there and the last export data was quite scary. However, inflation is now coming off and RBI stabilising the currency has also helped, as volatile currency is always a sign for investors to walk away in the past,” Sharma added.
Markets expensive but not enough to stop investment
Domestic investors did not pull out money amid massive FII selling from October 2021 to July 2022. According to HDFC Sec Institutional Equities Head, financial inclusion has paved way for more money entering the Indian share market from even Tier 2 and Tier 3 cities with not as much leakage for the money to leave the country. “Considering all the financial inclusion that has to happen and the delivery of corporates so far in terms of numbers, the market is expensive but it is not so frothy that you can not consider putting your money in right now,” Sharma said.
India’s growth is seen in late single digits, Earnings are expected to grow at 10% in FY23 and around 16% in FY24. “In that sense, everything looks great. Hence the market is trading 2 standard deviations above mean. In the present context, is there a reasonable price? The answer would be no but does that mean you should sell everything and walk away? The answer is no. Timing the market does not work, so what do you do? You try to gauge the probability of an upside or downside,” he added.
Markets to remain volatile, probability of upside low
Sharma expects market volatility to remain persistent in the coming months on account of Union Budget, holidays, and inflation. “The probability of upside is far lower as compared to risk on the downside. You can deal with this in two ways. Either you invest in a staggered manner or you reduce the risk in your portfolio by betting on growth at a reasonable price, value, and thematics,” the market veteran added.
Short-term investment picks
HDFC Securities Institutional equities is very positive on large private sector banks. The bias is slightly positive on second-tier banks but not on NBFCs. In the financial basket, other positives are life insurers, AMCs, and capital market companies amid financial inclusion. Infra remains HSIE’s big call of the year, as there will be a big shift from capital to Capex or Consumer to infra. Some other top bets include Real estate, Power Utilities, and Pharma. It is underweight on the new-age tech sector.
(The recommendations in this story are by the respective research analyst. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)