The Indian stock market may yield a 12-15% return in the next year, focusing on industrial, IT, and export sectors. Although earnings growth is currently slowing, banks are stable, and impending interest rate cuts by the RBI could bolster market recovery. A Multicap approach is recommended to leverage various sectors. Overall, gradual investment in Indian equities is advised amidst evolving economic conditions.
The Indian stock market is projected to yield a return of 12-15% over the next 12 months, with a focus on the industrial, IT, and export sectors. Despite a recent slowdown in corporate earnings from 15-20% to 8-10%, structural economic strength persists in India, bolstered by a GDP growth exceeding 6%. High interest rates, upcoming elections, and global political dynamics have influenced this deceleration.
Currently, the equity market trades at a valuation of 19x, near the pre-COVID lows of 18.3x, although India’s overall economic condition is significantly stronger. Banks exhibit low non-performing assets (NPAs) and robust balance sheets, enabling them to support private and public capital expenditures projected to reach ₹11 lakh crores in the forthcoming year.
The Reserve Bank of India (RBI) is anticipated to implement interest rate cuts of 50 basis points in April and June as part of a growth-focused strategy, capitalizing on declining inflation rates. Consequently, these measures signal a potential market bottom, whereas stocks in sectors like defence, railways, and industrials have seen respective declines of 30-50%.
The current quarter may involve cautious corporate guidance within India, yet the IT sector is expected to deliver optimistic guidance owing to a rebound in the U.S. market. Overall earnings growth in India is estimated between 12-14% over the next year, with expectations for acceleration by 2027, suggesting that a market rally could commence in about three months.
To achieve optimal returns, a Multicap investment approach is advisable, targeting the industrial, IT, and export-focused segments. Although Trump-era sanctions are anticipated to impact various global manufacturing countries, India’s economy remains primarily domestic-facing, with an emphasis on services, comprising 70% of the economy.
In the broader context, the pain currently felt within the market is largely seen as temporary. With further rate cuts expected in the near future and a likely stabilization of corporate earnings, the correction appears to be nearing completion. The decreasing trend in global and Indian interest rates is expected to reduce the cost of capital, ultimately fostering corporate investment and employment growth.
Despite uncertainties surrounding tariffs and inflation in the near term, beginning to allocate funds into Indian equities could prove advantageous. With over 7,000 publicly traded companies, India’s market environment is both fluctuating and expanding, promising a decline in the cost of capital as a positive trend.
In summary, the Indian stock market is expected to return 12-15% over the next year due to its structural strength despite cyclical slowdowns. As interest rates decrease and corporate earnings recover, sectors like IT and industrials are poised for growth. With a substantial number of public companies, the market provides significant investment opportunities, even amid global economic concerns. Investors are encouraged to consider gradual allocations into this robust market.
Original Source: www.livemint.com
