Indian equities to outperform despite near-term risks: Standard Chartered

While acknowledging that valuations appear stretched, Standard Chartered noted that Nifty's 12-month forward P/E ratio of 20.6x is above its long-term average of 18.2x but still below recent peaks.

Standard Chartered on Indian equities: Standard Chartered remains ‘Overweight’ on Indian equities, citing a favourable mix of domestic growth recovery, robust earnings prospects, easing financial conditions, and strong support from domestic investors. While near-term volatility is expected, Standard Chartered expects equities to outperform other traditional asset classes (bonds, commodities) in the medium-term.

 

“We stay overweight equities and expect it to outperform other traditional assets. A likely recovery in domestic growth and earnings, easing financial conditions, better valuations relative to bonds amid low foreign investor positioning and robust domestic investor flows are key drivers supporting our positive view on equities,” Standard Chartered said, in a note dated June 10.

 

According to Standard Chartered, India’s economic environment continues to support risk assets. The combination of consumption-boosting fiscal measures, improved real income, and broadening growth momentum is likely to boost corporate profitability. 

 

Additionally, the Reserve Bank of India's frontloaded rate cuts (50 bps) should serve as a tailwind for equities, although potential downside risks from recently announced reciprocal US trade tariffs remain.

 

Earnings growth remains a critical pillar of Standard Chartered's constructive stance. Bloomberg consensus estimates forecast Nifty earnings to grow 15 per cent in FY26 and 12.2 per cent in FY27, with large-cap equities showing relatively stable earnings revisions compared to broader markets. This has prompted Standard Chartered to maintain an overweight bias on large-cap equities, given their greater margin of safety in both earnings and valuations.

 

While acknowledging that valuations appear stretched, Standard Chartered noted that the Nifty’s 12-month forward price-to-equity (P/E) ratio of 20.6x is above its long-term average of 18.2x but still below recent peaks (22x). 

 

Furthermore, the price-to-book ratio of 3.4x and market capitalisation-to-GDP ratio of about 134 per cent signal elevated levels, particularly when compared to historical norms. Mid-cap equities are seen as particularly expensive, trading at a 36 per cent premium to large-caps—well above the 10-year average premium of 23 per cent.

 

On the flows front, Standard Chartered observed a sharp divergence between domestic and foreign investor behaviour. Year-to-date (Y-T-D), foreign investors have been net sellers, pulling out $11 billion from Indian equities. 

 

In contrast, domestic institutional investors have infused $36 billion, building on the $62.9 billion in inflows in 2024. Standard Chartered also believes steady SIP flows and retail investor participation continue to provide a strong buffer to the markets.

 

However, the report also flagged key risks to this positive view, including a potential growth slowdown, downward earnings revisions, and the threat of foreign investor outflows if domestic flows lose momentum.

 

“Risks to our positive equity view are: 1) Growth slowdown and probable downgrades of earnings expectations, 2) Elevated equity valuations, both absolute and relative to peers, 3) Foreign investor selling amid slowing domestic investor flows,” Standard Chartered highlighted.

 

That said, Standard Chartered has maintained a positive bias on Indian equities, particularly large caps, underpinned by strong macro fundamentals, earnings resilience, and supportive domestic liquidity, even as global uncertainties keep near-term volatility elevated.