India-specific de-rating done; markets eyeing earnings revival: Nuvama

The revival of Indian benchmark indices will depend on earnings momentum and potential rate easing by the central bank in the upcoming policy meeting, as stocks navigate a $1.3 trillion rout, according to Nuvama Institutional Equities.

 

Given the persistent selling by global funds, Nifty recorded five consecutive months of selling — the first time in three decades — and fell 15 per cent, from the previous peak, analysts at the brokerage said in a note. This "unprecedented" plunge has occurred amid low volatility,  Nuvama added.

 

The correction is owing to India's earnings reconciling with not just weak top-line growth, but also its emerging market peers. And, valuation concerns “only added to the misery,” triggering foreign exodus and undermining macro liquidity,  analysts said in the note.

 

 

In 2025, FPIs were net sellers of Rs 1.4 trillion, marking the worst start to any year, according to the data from National Securities Depository Ltd. As a result of a selloff by global funds, the equity asset under custody held by foreign portfolio investors plunged by nearly 20 per cent to Rs 62.38 trillion since September. READ MORE 

However, “India-specific de-rating is perhaps done,” Nuvama said as the correction in local stocks has pushed India’s valuation premium to EMs to their long-term averages. Nuvama, meanwhile, cautioned on moderating US growth as a risk to Indian recovery. US President Donald Trump’s “MAGA mania’s tariffs and DOGE measure” have raised US recession risks, potentially weighing on EM flows and dampening risk sentiments.

 

The benchmark gauges snapped last week’s minor recovery on Monday and tumbled on Tuesday tracking their Asian peers on risks of a likely recession in the US. The Nasdaq 100 posted its worst day since 2022, wiping out more than $1 trillion in value, according to Bloomberg.

 

Nuvama’s India Play

 

The fiscal 2024 earnings and the Reserve Bank of India’s easing will be the key factors to watch, Nuvama said. However, the earnings outlook is weak given fading margin tailwinds, weak demand and global uncertainties, it said. The RBI’s next MPC meeting is scheduled from April 7 to 9, 2025.

 

Analysts at Nuvama continue to maintain a “defensive bias” and prefer Indian large caps over small and mid-caps. Given the high valuations and weak US outlook, Nuvama downgraded domestic information technology stocks to ‘underweight’. It raised the rating of consumer companies to ‘overweight’ as a result of increased policy focus.

 

The brokerage maintained ‘overweight’ on private banks, insurance, telecom, pharma, cement and chemicals.