At a time when stock markets in the western world seem dislocated, Indian equity market’s story remains intact and Nifty50 may test new highs if headwinds on the dollar and bond yield fronts ebb, said Azeem Ahmad, head PMS and principal officer at Mutual Fund, in an interview with ETMarkets. Edited excerpts:
Are you bullish or bearish on the Indian market in the backdrop of the current global situation?
The stars have aligned for the Indian market’s outperformance. Even if the western world stock indices remain dislocated, India’s story will stay on course and fall less and recover faster. As and when the key headwind of dollar/rates bid peters out, Nifty is likely to climb to a new high and then lead to mid and smallcap outperformance, which again is a strong trait of mid-cycle economic play.
Are you bullish or bearish on the Indian market in the backdrop of the current global situation?
The stars have aligned for the Indian market’s outperformance. Even if the western world stock indices remain dislocated, India’s story will stay on course and fall less and recover faster. As and when the key headwind of dollar/rates bid peters out, Nifty is likely to climb to a new high and then lead to mid and smallcap outperformance, which again is a strong trait of mid-cycle economic play.
India’s relative outperformance has fresh legs on the back of a resilient top-down set-up and an improving bottom-up situation.
Where do you see Nifty and Sensex by next Diwali?
From a fundamental standpoint, Nifty can move up by 11%. Nifty50 earnings are seen growing at a CAGR of 13.3%. We value Nifty at 19,425, i.e. 21x PE on FY24 EPS of 925. And for Sensex, that would imply a 64,100 target.
From a quantitative perspective as well, whenever 1-year rolling returns of Nifty are -4% or so, the following year sees gains northwards of 10%.
So as we enter Samvat 2079, what are the key drivers that will help India sustain a premium over its peers?
India’s premium story is well supported by improving top-down, strong bottom-up and resilient fund flow picture.
On a top-down assessment, among the major economies, India is the only one expected to grow at 6% in CY23 and has one of the lowest negative real rates (policy rate – inflation rate) of -120 bps vs > -500 bps in key developed markets.
This is coupled with mid-cycle spoils of rising tax collection, rising credit growth, and improving capacity utilization (a trend that has already played out in the west). Meanwhile, bottom-up set-up is promising for mid-cycle plays like banking, cyclicals and consumption.
The most compelling story comes from the resilient fund flow picture. On the domestic money flow, while the role of SIP (systematic investment plan) is well documented, the role of retirement fund allocation is still not well understood, as these are stable pools of money that will continue to come into the equity market via the ETF (exchange-traded funds) route.
Additionally, FII money flow picture also has witnessed a tectonic shift. In the last 20 months, the weight of India on MSCI EM index has increased by over 600 bps to the second highest at 15%, while the weight of China has reduced by over 1200 bps.
With more than 90% of the India FII money flow being from EM dedicated funds (Active 86% and Passive 8%), the peaking out in rates and dollar is likely to trigger strong inflows into India.
Do you see any downside risks for Indian equities over the next one year?
Most of the risks for Indian equities are from an external backdrop. The risk of rupee depreciation-driven “imported” inflation, coupled with material deterioration in CAD (current account deficit) or domestic food inflation remain risks that could play out.
Other more material risk remains that of a global recession in 2023. The political and energy crises in the UK and Europe have put them on the precipice of recession. The US and China still are showing that some fighting power is left. As long as the world’s two largest economies are able to avoid a recession, then equities should hold up well.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
Denial of responsibility! NewsBit.us is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.
