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CNBC
14 hours ago
- Business
- CNBC
CNBC's Inside India newsletter: Wall Street and investors turn bullish on India after two turbulent quarters
Having overcome fears of the India-Pakistan conflict, Indian markets might lose its temporary status as a "safe haven" market if the U.S. and China come to a deal. Those worries and a concoction of other factors — inflation, earnings disappointments — have led to lackluster performance for equities so far this year. The Nifty 50 is up 4.7% so far this year, and investors are likely to have welcomed the sideways move by the benchmark in May with a sigh of relief, in fact. But the tide may be about to turn as Wall Street analysts and investors turn bullish. The Indian market is currently one of the most expensive globally, trading at over 20% premiums to its 20-year average price-to-earnings (P/E) ratio, which limits the potential for significant Nifty benchmark upside, according to analysts at CLSA. "After the recent rally, the Indian market has again inched up to become nearly the most expensive market in the world," said CLSA's Vikash Kumar Jain in a note to clients. Goldman Sachs strategists echoed that point, saying the MSCI India index "does not look favourable" even when adjusting for a stronger growth potential. Wonks over at Morgan Stanley took a similar view of the stock market's recent performance. "Since September 2024, the market has digested an unprecedented amount of bad news – excessive valuations in [small and mid-cap] and a sharp correction in the broad market pointing to a slowdown in macro growth and earnings, US tariff-related volatility and a major terrorist attack along with India's response with the large-cap indexes about 5% from all-time highs and almost negligible changes in implied volumes," said the Wall Street bank's Ridham Desai. Norma analyst Saion Mukherjee also noted that most companies beat expectations for the latest quarter, but only because the expectations had been lowered significantly. Yet, every single one of those market participants has turned bullish over the past couple of weeks. Goldman Sachs raised its price target for the Nifty 50 to 26,200. Nomura similarly sees the index at 26,140. Even long-time cautious bears such as Bernstein's Venugopal Garre, who has been right in cautioning investors over rich valuations in the small and mid-cap sectors (SMID), are now rethinking their outlook. "They've been in a bubble zone for a while — a point we've never hesitated stating," said Garre. "The reality is this: the SMID bubbles have let go of a lot of froth and are broadly valued in line with recent history. Not cheap, and not exorbitant." And it's not just strategists, analysts and advisors turning around. Money managers are also echoing the same sentiment. "A lot of people look at India and have said, 'Gosh, the valuations are enormous,'" said Andrew Dalrymple, chief investment officer at Aubrey Capital Management. "If you took that view, you'd never buy an Indian equity. You would have missed an enormous opportunity in the last five years." Aubrey Global Emerging Markets Strategy, which manages more than $500 million in assets, has 35% of its fund allocated to India, its largest allocation. "We try to reconcile valuation of the price earnings-to-growth ratio, and say when we look at an Indian company, it might nominally have that high P/E but we then say this is justified by price-to-growth ratio, which we try to keep at less than 1.5 times," Dalrymple added. "And that way, we find we have been able to exploit some extremely successful, very, very profitable investment opportunities over the years." Dalrymple's sentiment is also reflected in the data. Foreign institutional investors have been net buyers of Indian equities over the past two months. Yet, it's off a low base, suggesting a significant upside in an ideal scenario. Morgan Stanley's Desai noted that "foreign portfolios positioning is the weakest since we have had the data in 2000, and there are early signs that their view on India is shifting." Amid all the sudden bullishness, however, many investors have learned a thing or two over the past year and are approaching with caution. "This is likely to be a stock pickers' market, in contrast to one driven by top-down or macro factors since the Covid pandemic," Desai said in a note to clients on June 2. Financials, often viewed as a leveraged bet on the future of a nation, appear to be a favorite among many. In the large-cap space, Axis Bank was a top pick for Nomura and Goldman Sachs, with ICICI Bank seen favorably by Morgan Stanley, CLSA and JP Morgan. India's economy expands more than expected. Gross domestic product in the quarter ended March grew 7.4%. That figure's much higher than the 6.7% expected by a Reuters poll of economists and the fastest rate of quarterly expansion for fiscal year 2025, according to government data released Friday. For the full fiscal year, India's economy expanded by 6.5%, in line with the government's February estimate. U.S. authorities are reportedly investigating Adani's companies. Prosecutors from the U.S. Attorney's Office in Brooklyn are looking into whether Gautam Adani's companies have been importing liquefied petroleum gas from Iran into India, according to the Wall Street Journal. A spokesperson for the Adani group "categorially denies" the allegations. Reserve Bank of India expected to cut rates two more times. That's according to Chetan Ahya, chief Asia economist at Morgan Stanley, who said that the RBI should be comfortable with two more rate cuts in the current economic climate because India's "growth conditions will still be reasonable" and inflation is likely to remain below 4%. Air travel by Indian nationals could cause the aviation industry to skyrocket. India is the third-largest air travel market in the world, Air India CEO Campbell Wilson told CNBC's Monica Pitrelli at the World Air Transport Summit over the weekend. "So if Indians start traveling... at the intensity of China, it's going to absolutely explode in volume internationally," Wilson Nifty 50 has stayed absolutely flat, so far this week. The index has risen 4.7% this year. The benchmark 10-year Indian government bond yield moved lower by 3 basis points compared to last week. On CNBC TV this week, Anubhuti Sahay, head of India economics research at Standard Chartered Bank, said that India's fiscal fourth-quarter economic expansion was "much higher than anyone of us expected" because of growth in net indirect taxes. However, that number can "keep on fluctuating" and eventually fade, so India's gross domestic product will likely return to the trend of 6.5%. The bank's full-year forecast for India's financial year 2026 is 6.6%. Meanwhile, APEC President of Marriott International Rajeev Menon said that India is "one of the most strategic markets in the world" for the hotel chain. Menon pointed out that occupancy growth is driven by secondary and tertiary cities as much as demand from bigger cities like New Delhi and Bangalore, which suggests that the India's rising middle class is a revenue opportunity for central bank will announce its interest rate decision Friday, when it is expected to lower rates by 25 basis points to 5.75%, according to LSEG data. The country will also be releasing data on its consumer inflation rate for May next Thursday. Meanwhile, Ganga Bath Fittings, a manufacturer of bathroom accessories, lists Wednesday. June 6: Reserve Bank of India interest rate decision June 11: Ganga Bath Fittings IPO June 12: India consumer price index for May
CNBC
15-05-2025
- Business
- CNBC
CNBC's Inside India newsletter: Could border flare-ups threaten India investments?
The Indian stock market has emerged from a volatile few weeks and soared past the level it was before the latest India-Pakistan flare-ups. It shouldn't come as a surprise, though, because for a growing cohort of global investors focused on India, such border crises, while serious, are viewed as just one variable in a far more complex equation — for now. While Indian stock markets initially dipped after it became apparent that India and Pakistan were headed toward armed conflict, Kieron Kader, an associate fund manager on Alquity's Indian Subcontinent fund, told CNBC that the episode was "not going to change the overall return profile dramatically." Instead, the ensuing volatility was more likely to be a "gift to the long-term investor," Kader added. He bought shares of NYSE-listed MakeMyTrip, Lemon Tree Hotels and Samhi Hotels after they tumbled, only to see them rise strongly since. He isn't the only one with that view. Anand Gupta, lead portfolio manager for Allianz India Equity, pointed out that the Indian equity market displayed "remarkable resilience" during the crisis peak, with the MSCI India index seeing only a "modest correction" of around 1.5% despite a spike in the India VIX, or "fear gauge." He attributed this to "investor confidence supported by India's strong economic fundamentals" and a "historical pattern of limited market disruption during geopolitical flare-ups of this nature." Indeed, the risks from recent military flare-ups appear to have been offset by the fact that India is considered by many to be an attractive investment destination. Research from Barclays's credit team also noted that the "macro impact is limited for both India and Pakistan" from the recent conflict. However, while the hostilities may not have spooked investors, over the longer term, rising geopolitical tensions could pose risks. And there have been some surprises in the conflict this time around. Events from earlier this month have marked a significant escalation from previous skirmishes between the two nuclear-armed nations. For the first time, both claimed to have attacked territories deep into the opposing side. In contrast, the Balakot strikes in 2019 saw India hitting locations very close to the border. The Indian Air Force mostly kept within India during the 1999 Kargil war. For decades, most conflicts between the two remained largely on land. While investors may be somewhat desensitized to India-Pakistan tensions, the political willingness to escalate conflict has raised concerns for some, given the wider geopolitical situation around the world. "Geopolitically India is not in a great situation," said Venugopal Garre, head of India research at Bernstein, in a note to clients on May 7. He pointed to the change of political stance toward India by neighbors Bangladesh and Sri Lanka, and its traditional allies, Russia and Israel. These countries are now occupied with war closer to home. Garre added that China's support of Pakistan doesn't help either. India has a precarious relationship with China — its largest neighbor — exhibiting certain qualities that are similar to its relationship with Pakistan. China and India share a long border with many points of disagreement that have remained unsettled for decades. The two countries also went to war in 1962 over a border dispute. More recently, 20 Indian soldiers were killed in a clash with Chinese forces in a disputed Himalayan border area in 2020. While an actual military conflict between the two Asian giants is deemed "very, very unlikely" by Alquity's Kader, he admits that such an eventuality would be a "very scary situation" potentially requiring "global intervention" and significantly elevating India's risk premium. The scenario is seen as being near-impossible because, economically, the two countries have an interdependent relationship. Bernstein noted: "India needs China to help build its low-end assembly franchise while China may consider India as potential market (it runs a large trade surplus with India which it may not want to risk losing)." Historically, however, India and Pakistan were also tied together economically as well as culturally. Yet, recent events show that when violence erupts, it can be difficult to predict how far each side will go. Investors might want to take note of the risks. Trump doesn't want Apple building products in India. The U.S. President said he told Apple CEO Tim Cook that he doesn't want the tech giant to build its products in India, taking shots at the company's moves to diversify production away from China and urging him to pivot stateside. India's consumer inflation rate in April cools. Headline inflation fell to 3.16% in April from 3.34% in March, and came in lower than the 3.27% expected by economists polled by Reuters. It was the sixth straight month that price increases moderated. Food inflation, which is a key inflation metric in the country, dipped to 1.78% in April, from March's figure of 2.69%. Wholesale prices in India also fell. In April, wholesale inflation, which serves as a proxy for producer prices, rose 0.85% on an annual basis, much lower than the 2.05% increase the previous month and marking the slowest increase in more than a year. The reading was also lower than the forecast of 1.76% by a Reuters poll of economists. Encouraging consumer and wholesale inflation readings open the door to more rate cuts by the Reserve Bank of India. India raised the idea of retaliatory tariffs on America. Even as India is reportedly negotiating a trade deal with the U.S., the South Asian country on May 12 proposed to the World Trade Organisation that it retracts tariff concessions to the U.S., which would amount to $1.91 billion in duty collected from U.S. imports. The ceasefire between India and Pakistan is brittle but intact. Both countries reached an agreement to stop military action on May 10, but have accused one another of violating it. That said, armed conflict has largely abated from the height of hostilities beginning May 6, which India said was a response to a militant attack last month in Pahalgam, Jammu and Kashmir, in which 26 people were killed. In a post on Truth Social, U.S. President Donald Trump offered help to find a "solution" regarding Kashmir. The Nifty 50 index closed above 25,000 points for the first time since October, as it heads for a 4.4% gain this week. The index has risen 6% this year. The benchmark 10-year Indian government bond yield declined to 6.23%, down by about 10 basis points from last week. On CNBC TV this week, Shilpak Ambule, India's high commissioner to Singapore, said India will not distinguish between "terrorists and government sponsors of terrorist," and further discussed India's perspective of its conflict with Pakistan that broke out earlier this month. Ambule stressed that India is still forging trade ties with countries such as the U.S., the European Union and New Zealand amid its hostilities with Pakistan. Meanwhile, Mark Mobius, founder of Mobius Investments, said India is the "most exciting place" now because it will replace China in many areas. For instance, Apple has already shifted some of its manufacturing and export operations to India. Mobius also said Prime Minister Narendra Modi is doing a good job of cutting through the Indian bureaucracy, streamlining the country's infrastructure and economy. India's balance of trade figures, out Friday, will receive more scrutiny than usual, given U.S. President Donald Trump's emphasis on trade imbalances between America and its partners. Meanwhile, Integrity Infrabuild, a construction company, lists Tuesday, followed by Accretion Pharmaceuticals on Wednesday. May 16: India balance of trade for April May 20: Integrity Infrabuild Developers IPO May 21: Accretion Pharmaceuticals IPO May 22: India HSBC PMI flash data for May
Mint
15-05-2025
- Business
- Mint
Nifty logs highest close in 7 months as conflict fears recede. But volatility lingers.
India's benchmark Nifty 50 index surged past the key 25,000 mark on Thursday, notching its highest close in seven months amid signs of easing geopolitical tensions. The rally coincided with the weekly derivatives expiry, pushing volume turnover on the National Stock Exchange to ₹ 1.28 trillion—the highest since 27 March's ₹ 1.5 trillion mark. Besides, potential short covering investor sentiment got a lift after US President Donald Trump said India had offered a 'zero-tariff' trade deal for American goods. However, after market hours, India dismissed Trump's claim with external affairs minister S. Jaishankar clarifying that trade talks with the US were still ongoing and 'complicated'. Adding to the market buzz, MSCI India's upcoming index rejig on 30 May likely prompted mutual funds and exchange-traded funds (ETFs) tracking the index to begin realigning their portfolios. According to Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research, India could see passive inflows of nearly $200 million from foreign institutional investors (FIIs) due to these changes. 'India continues to hold its position as the second-largest country weight in the MSCI EM (emerging market) index, maintaining a weight close to 19.5%. With the latest changes, the stock count will rise from 157 to 159,' he said. On Thursday, Nifty 50 jumped 1.6% higher to settle at 25,062.10 points, the highest since it reached 25,127.95 on 14 October 2024. The S&P BSE Sensex climbed 1.5% to close the day at 82,530.74 points, the highest since 82,497.1 on 3 October. Thursday belonged to the largecaps, which outshone their midcap and smallcap peers. The Nifty Midcap 100 edged up just 0.7% and the Nifty Smallcap 250 managed a modest 0.8% gain. Irrespective of geopolitical developments, investors need to focus on 'fundamentals like economic growth, where India stands out among major economies, a falling interest rate regime, lower oil prices, and relatively robust earnings, to name only a few', said Sunil Singhania, founder of Abakkus Asset Manager. Sandeep Bagla, chief executive of TRUST Mutual Fund, said while the worst of geopolitical tensions may have eased, volatility could still remain elevated in the near future. 'India is a distinct and attractive opportunity compared to other emerging markets,' he said, adding, however, that although investors have several opportunities on a relative basis, valuations remain high. Still, Bagla remains optimistic about the long-term prospects of sectors such as defense, premium consumption, and financials. On Thursday, all sectors ended in the green with Nifty Auto and Nifty Realty leading the charge, gaining 2% each. In terms of stocks, index heavyweights Reliance Industries Ltd, Infosys Ltd, and ICICI Bank Ltd were the biggest contributors to the rise in Nifty 50 index. Asian markets lost momentum on Thursday—Japan's Nikkei, China's CSI 300, Hong Kong's Hang Seng, and South Korea's Kospi all lost about 1%. India faced heightened concerns the past fortnight due to the escalating conflict with Pakistan, sparking a wave of hedging activity. However, following the ceasefire between both nations, India's equity market experienced a relief rally. The positive shift was further supported by a global rebound driven by easing tensions in US-China trade talks. The big question now is how long this momentum can keep its stride. 'Sustenance in the long run will depend on market earnings,' said Jitendra Sriram, senior fund manager, Baroda BNP Paribas Mutual Fund. The relief rally post the brief India-Pakistan conflict has been the single biggest factor for the near-term optimism. Also, any let up in global tariff wars could mean that global growth may not suffer as much as has been feared, Sriram explained. Also, the contours of Trump's final proposals for the US pharmaceutical sector were also relatively watered down from the original proposals. This also fueled some pick-up in global plays like metals, technology, and pharmaceuticals, which have meaningful weights in Indian indices, Sriram added. Corporate earnings have also been weighing on the markets. Bernstein Research said in a 13 May report that 'the single largest concern that we… received from investors has been on the earnings risks front'. But the brokerage does not expect more corporate rating downgrades for now. Overall, there is a slight slowdown with NSE100 firms growing at 10%, compared with 11% in the previous quarter. However, the worst-case earnings projections that resulted from continuous downgrades since September have not materialized. About 51% of companies exceeded market estimates by over 4% in the final quarter of 2024-25, the highest since June 2023, Bernstein said. The percentage of companies missing estimates was at its lowest since September 2021. (With inputs from Ram Sahgal)
India Gazette
13-05-2025
- Business
- India Gazette
India's Communication Services to deliver strongest EPS growth in 2025 and 2026: JP Morgan
New Delhi [India], May 13 (ANI): JP Morgan's latest outlook on MSCI India earnings growth estimates signals a positive trend in sectoral earnings per share (EPS) for 2025 and 2026. The data, released by the financial major, shows that India's sectoral earnings are set to grow steadily, with some sectors poised to deliver standout performances over the next two years. According to the JP Morgan chart, Communication Services is expected to deliver the strongest EPS growth among all sectors. For 2025, the grey bar for this sector touches nearly 45 per cent, and the green bar for 2026 maintains this level, making it the most promising sector in both years. The previous estimate (grey diamond) for 2025 was slightly higher, showing some moderation, but the outlook still remains solid. Similarly, the 2026 estimate (green diamond) has remained stable, showing consistency in analyst expectations. Materials is another sector showing significant growth potential. EPS is projected to rise by about 30 per cent in 2025. The estimates have improved compared to projections made three months ago, indicating rising optimism. The Materials sector, with a sector weight of 7.5 per cent in MSCI, could contribute meaningfully to overall earnings growth. Industrials also show strong performance, with EPS growth of over 20 per cent expected in both 2025 and 2026. While the latest 2026 forecast is slightly lower than the earlier estimate, the 2025 outlook remains firm, represented by stable green and green-diamond markers. The Financials and Consumer Discretionary sectors follows, with projected EPS growth between 13 per cent and 18 per cent over the next two years. Healthcare, despite having a smaller index weight of 5.7 per cent, is also expected to post EPS growth of around 10 per cent in both years. On the other hand, sectors like Utilities, Technology, and Energy are expected to see only low single-digit growth. These sectors remain the laggards in the earnings forecast. The overall MSCI India index is projected to grow at around 13 per cent in 2025 and 15 per cent in 2026, reflecting a stable macro outlook for Indian corporates. JP Morgan's projections suggests to keep an eye on Communication Services, Materials, and Industrials, as these sectors are expected to drive India's earnings growth in 2025 and 2026. (ANI)
