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Currently, the valuation of Indian equity markets is expensive and earnings growth are low. This may lead to correction, according to Emkay Wealth Management.
The wealth management firm has estimated the earnings for Nifty to grow at 7.90% in FY25 and said that the markets are likely to pick up with increase in earnings growth.
While summing up the current state of the Indian markets at the virtual media session, Dr. Joseph Thomas, Head of Research, Emkay Wealth Management said, “The domestic economy is poised to grow at 7% as the economy is structurally tuned to grow at that rate. The large public capex, the favourable liquidity conditions and the likelihood of lower interest rates augur well for economic growth.”
Sharing his insights on the opportunities in the current market, Ashish Ranawade, Head of Products, Emkay Wealth Management said, “The current market offers opportunities for stock selection as pockets of attractive valuation exist. We may not see a broad-based rally across the board but there are ample opportunities for growth and wealth creation within Indian equities.”
Other insights shared at the event are as follows:
Valuation and asset allocation
- The market cap to GDP ratio of the Indian listed universe hit a 15-year high of 140% earlier this year indicating overvaluation of the Indian market
- Investors should look to have about 30% of their equity allocation in US stocks as they provide better technology exposure compared to Indian markets. Overall, investors should look to have a 50:50 debt and equity allocation
- Due to the likelihood of a rate cut by RBI in the next few quarters, investors can look for tactical allocation in debt. However, equity will continue to outperform debt over a 3-year horizon
US and Indian monetary policy
- The Trump presidency is expected to be a lower rate regime, which will move funds from the US and other advanced economies to emerging markets
- The Monetary Policy Committee (MPC) is expected to cut rates between 25-50 bps due to a spike in the Consumer Price Index (CPI)
- The housing sector is likely to be the biggest beneficiary of this rate cut
IPO
- The current IPO market will moderate going forward as companies with unique business models attracting investors
- The high number of IPOs in recent months has made the Indian markets wider than what the markets indicate
