 "nifty market")
Emkay Investment Managers Ltd. (EIML), the portfolio management arm of Emkay Global Financial Services, expects a significant growth potential for India's stock market over the next 18 months and beyond. The brokerage forecasts a 15% increase in earnings, propelling the Nifty 50 index to a level of 24,500 by December 2024. Their optimism extends further, predicting the Nifty to potentially surpass 26,500 by December 2025.
The immediate future of the market hinges on the upcoming Indian elections. EIML believes a strong showing by the NDA (with a base case scenario of 330 seats) would translate into policy continuity and major reforms in critical areas like land, labor, and judiciary. This, in turn, would likely foster a positive market sentiment.
Beyond the upcoming elections, global developments will also be closely monitored. Geopolitical events, along with US and UK elections, could influence market movements. Additionally, the potential for a US Federal Reserve rate cut in the third or fourth quarter of FY25 could provide further impetus to the Indian market.
What should investors do?
To capitalize on the anticipated broad-based growth, EIML recommends a multi-cap approach. This strategy allocates equal weightage to both large-cap and mid-cap stocks, offering investors exposure to a diversified pool of companies. EIML believes mid-cap stocks hold significant potential for delivering substantial returns in the medium term.
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"EIML advises having a multi-cap approach with equal proposition in large-caps and mid-caps to take advantage of a broad-based growth in Indian equity markets. Most delta in the medium term is expected to come from the broader markets," it said in a statement.
Sectoral Picks: Manish Sonthalia, Chief Investment Officer at EIML, highlighted several promising sectors:
BFSI (Banking, Financial Services & Insurance): This sector has already witnessed strong earnings growth, followed by a recent valuation correction. EIML anticipates continued positive performance.
Public Sector Undertakings (PSUs): EIML sees potential for re-rating in PSUs, particularly those in strategic sectors like defense, oil marketing, and power financing.
Industrials: This sector is also expected to contribute to market growth.
Pharmaceuticals: After a post-pandemic slump, EIML predicts a turnaround for the pharmaceutical sector.
Consumer Discretionary: A "K-shaped" recovery is anticipated, with luxury and premium segments experiencing strong growth, while the entry-level segment might lag behind.
"“BFSI, PSUs, and industrials are expected to do well. BFSI has led the earnings growth and seen a correction in valuation. Investment-related themes will come into play with power capex building up in the next 3 to 5 years. We are re-rating public sector units as some of the government entities will have an advantage in sectors such as defence, oil marketing companies and power financers. After being in a slump post-COVID, pharmaceuticals are expected to see a turnaround. We are witnessing K-shaped recovery in the premier end of consumer discretionary, with entry-level segment still not doing well," said Sonthalia.
India's "Golden Decade" on the Horizon: EIML echoes the notion of India's "golden decade" of growth, suggesting the country is at a pivotal point to transition into an USD 8 trillion economy. The following themes are expected to be key drivers of this growth:
Consumption: Per capita income moving up to USD 4500 by 2029 will translate into higher consumption of discretionary items.
Manufacturing: China+1 and Europe +1 likely to benefit speciality chemicals, pharmaceuticals, automobiles and electronic manufacturing services.
Green energy: Solar and wind expected to mainstream of energy transition in India. Value chain in power side is expected to benefit in a big way.
Digitization & AI: India will be at the forefront of innovation in technology.
Financialization of savings: Moving away from investments in fixed income to equity will benefit investment platform providers.
