India second-best performing major market this year | The Financial Express

India second-best performing major market this year

“Recessionary fears present a weaker backdrop for global risk assets, and the global outlook remains abnormally uncertain,” added Vora.

India second-best performing major market this year
India’s market capitalisation-to-GDP ratio now stands at 104% of FY23E GDP, above its long-term average of 81%, according to a report by Motilal Oswal Financial Services.

Indian equities have continued to extend their lead over most other major markets and are now the second-best performing market this year after Brazil.

India has returned -10% in dollar terms year-to-date (YTD), far behind Brazil, which has gained 8%. But it’s way ahead of most other major markets like US, Japan, China, Taiwan, France, Germany and South Korea, which have returned -25% or lower.

India’s market capitalisation-to-GDP ratio now stands at 104% of FY23E GDP, above its long-term average of 81%, according to a report by Motilal Oswal Financial Services.

Nifty 12-month forward P/E, at 18.8x, is at a 2% premium to its long period average of 18.5x. At 2.9x, the 12-month forward P/B stood at a premium of 11% to the Nifty’s historical average of 2.7x.

“India’s valuation premium to its Asian peers remain near all-time high. Amid slowing global demand, lofty market valuations, a slowdown in retail flows and lack of positive catalyst for our earnings estimates, we remain cautious on the overall market returns in the near term,” said Kunal Vora, head of India equity research at BNP Paribas in a recent note.

FPIs withdrew $1.6 billion in September after clocking the highest inflows since December 2020 in the previous month. Outflows stood at $22.6 billion YTD. Domestic institutional investors have turned net buyers at $1.7 billion in September after recording outflows in August. Inflows stood at $28.9 billion YTD.

Also Read: Global bond funds see biggest outflows in two decades

A high current account deficit along with potential FPI outflows, are likely to keep the depreciating bias on the rupee and strain India’s forex reserves. On the positive side, India’s inflation is lower than in developed economies due to the composition of the CPI index. Raw material costs have cooled, which should ease the trade deficit, and another normal monsoon should keep food inflation in check, with GST collections remaining robust at a three-year CAGR of 13%, BNP Paribas said.

“Recessionary fears present a weaker backdrop for global risk assets, and the global outlook remains abnormally uncertain,” added Vora.

US equities, however, surged on Monday and Tuesday on hopes that weakening US manufacturing and jobs data would lead to a change in global central bank policy. Britain’s decision to let go of its controversial plan to cut taxes for the highest earners just 10 days after announcing it has also boosted investor confidence.

Sean Darby, chief global equity strategist at Jefferies, believes that Asian and EM market equities have done well in the backdrop of the Fed tightening, surge in dollar index as well as the ongoing geopolitical tensions between Russia and Ukraine. India’s probably going to do very, very well in the next 12-18 months given that it has managed inflation well and it is not as heavily influenced by the US policy and by China’s growth, he said.

Local or domestic-oriented themes are likely to perform better in the near term, said experts. Banks, automobiles, hospitals, discretionary consumption and domestic industrial themes look attractive in the near term over export and commodity sector themes.

Nifty Bank has outperformed Nifty IT by 40% YTD and substantially bridged the gap of last three years, according to brokerage Motilal Oswal. The weightage of the technology sector fell 530 basis points YTD to 13.8%, while weightage of the consumer sector rose 180 bps to 11.2%. The weightage of private banks grew 140 bps YTD to 23.3%.

“India equities so far have remained insulated from the higher inflation and slower growth worries, and have materially outperformed global peers. However, with interest rates rising globally and the global growth environment incrementally becoming more challenging, equity valuations could come under pressure,” said Jitendra Gohil, head of India equity research, Credit Suisse Wealth Management, India, in a recent note.

“While we continue to believe India remains in a sweet spot and could likely continue to command a valuation premium versus peers due to superior fundamentals, some caution and risk management are warranted,” added Gohil.

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