[ad_1]
BNP Paribas has renewed the positive outlook on India and China in a report with an ‘overweight’ stance, highlighting India’s preference for greater attention and allocation. It attributed the country’s strong performance to structural market stability, policy-driven economic resilience, and domestic inflows.
This success in 2022 and Q2-Q3 of 2023 is due to robust economic growth, corporate expansion, policy-driven investments, global supply-chain adjustments, and stable domestic stock market liquidity.
“We have discussed the notable data points, indicating the Indian economy’s robustness on several occasions – strong credit growth (15-17 percent YoY in FY23), healthy GST collection growth (12-15 percent YoY in FY23) indicating vigorous corporate topline, and a strong investment surge, especially in the government’s infrastructure spending (central government capex as a proportion of total spending has gone from 17 percent in FY20 to 25 percent in FY23),” BNP Paribas said in its latest note.
Valuations stay high, but with relatively fewer risks, BNP Paribas said, asserting that the risks will persist. It sees justification for the current 20.7x next twelve month P/E multiple due to consensus forecasts of around 20 percent EPS CAGR for MSCI India in FY23-24. A significant EPS estimate cut seems unlikely from BNP Paribas’ perspective. Despite liquidity constraints and global slowdown worries, MSCI India’s consensus EPS estimate has risen recently, highlighting strong corporate profitability.
BNP Paribas finds consumer staples, IT, and materials sectors pricey, relative to the estimated earnings growth. Other sectors appear more reasonable. Notably, IT earnings are recovering with strong order flows, and even within costly consumer staples, there are affordable choices, it adds. The brokerage firm raised its India exposure by adding ITC Ltd and increasing its stake in TCS.
The brokerage house says that while India enjoys favourable conditions, potential risks warrant consideration. Recent spikes in CPI inflation have raised concerns about monetary policy, currency strength, and FII flows. July 2023 saw CPI inflation hit 7.4 percent (up from 4.8 percent in June), driven by soaring vegetable prices. Despite this, core CPI remains around 5 percent, with minimal monetary policy impact.
The weakening rupee and August FII flows ($182 million) are weaker than recent months, but FII influence on Indian equities is diminishing due to strong DII inflows. Monthly SIP flows of $2 billion counterbalance potential FII outflows, it added.
[ad_2]
Source link