Indian markets are still trading at a premium, despite the correction witnessed in the previous month. The timely correction will continue going forward, and market moves are likely to follow the direction of change in FY24 earnings, Neelkanth Mishra, co-head – equity strategy, Asia Pacific & India equity strategist, Credit Suisse, said.

Price to earnings (P/E) multiples have risen sharply across the globe in recent times and are expected to stay elevated. However, India’s premium to global equities and emerging markets is already high. “Despite the recent correction, India’s forward P/E is still 1.5 standard deviations ahead of the 10-year average,” Mishra said.

Global inflation, uncertainty due to the Omicron variant, monetary policy changes, and weakness in demand are likely to impact the Indian markets too. However, the macro-economic risks may be more manageable given fiscal comfort and some balance-of-payments buffer. “As global risks and growth concerns emerge in the coming times, Indian markets will be impacted too,” said Mishra.

A sharp fall in the base case is unlikely to occur as outflows from foreign institutional investors (FII) are offset by robust domestic institutional investors (DII) flows. DII flows remain mainly aided by strong growth in systematic investment plans (SIPs) and mutual fund trends. “Weak flows from foreign institutional investors are mainly due to bad neighbourhood as significant ownership of 35-40% is from emerging markets and Asia Funds,” Mishra said.

On earnings, Credit Suisse expects a 5% upgrade from current levels in the FY24 Nifty EPS after a broad-based slowdown between FY12-FY19 — wherein they grew just 4%, mainly due to clean up of bank balance sheets and a downturn in the real estate space. Financials will remain key to recovery, with a 45% contribution over FY22 to FY24. Further, a positive rebound is expected in the top-line growth within banks in the upcoming fiscal as the economy recovers.

Overall, it expects positive economic growth seen in the last few months to continue in 2022. However, the pace is likely to be moderated on high energy prices. “Credit Suisse continues to expect a 4% upgrade to the current consensus GDP for FY23,” the firm said in the report.


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