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Informist, Tuesday, Oct. 8, 2024

MUMBAI – Nomura Global Research said Indian equities may underperform in the near term compared with the broader Asia index, which excludes Japan, amid foreign investors' renewed interest in Chinese and Hong Kong equities. The recent fiscal measures announced by China pushed investors to increase their weightage for China, which is being funded by selling equities in emerging markets such as India, Nomura said. 

Nomura said this likely played out last week, when the Nifty 50 declined 4.4% with foreign investors selling Indian equities worth $4.4 billion. Last week, the MSCI India index declined 4.6% against the overall benchmark gaining 1.4%, driven largely by gains in China and Hong Kong stocks.

The brokerage expects more pressure on Indian equities if China announces more fiscal measures and local investors in China start buying equities significantly. Looking at this, Nomura expects muted gains for the remaining part of this year and maintained its year-end target for the Nifty 50 at 24860 points. At 1050 IST, the Nifty 50 was at 24906.25 points, up 0.5%.

Emerging equity markets in Asia, excluding China, witnessed $6.9 billion of foreign net outflows, partly driven by investors increasing their weightage for Hong Kong and China stocks from their earlier underweight stance, Nomura said.

However, the research firm expects foreign investors to look to re-enter the Indian market if valuations revert to more palatable levels. The MSCI India index is currently trading at a forward price-to-earnings ratio of 24.1 times as compared with the post-2015 average of 19.5 times. It said if the forward price-to-earnings ratio declines to 21 times, investors may start to rebuild their positions. Knowing this, the brokerage said they do not expect Indian markets to underperform for very long.

While foreigners have been net sellers in the last week, some of this was absorbed by domestic institutional and non-institutional investors. Indian mutual funds' cash balances at the end of August were at an almost five-year high of $22 billion, suggesting an ability to absorb some of the foreign outflows, Nomura said, citing media reports.

However, with stocks in China available at a comfortable valuation compared to Indian stocks, even Indian investors could diversify their investments, which may result in a slowdown of flows into domestic mutual funds, Nomura said. The brokerage also sees risk due to signs of a slowdown in growth in India. "There are already some signs of cyclical slowdown in indicators such as sales of passenger vehicles and medium and heavy commercial vehicles, which both disappointed market expectations in July and August," Nomura said.

Having said that, Nomura was confident of India's long-term growth prospects and said any significant fall in Indian stocks may prove to be a buying opportunity. Nomura said a large and liquid market such as India, with higher-quality companies, will continue to benefit from long-term themes such as supply chain relocation and a push toward investment-led growth. Further, there is still uncertainty around the impact of the stimulus in China which, the brokerage said, may work in the favour of Indian equities. "While China has pledged fiscal support, details are still lacking, and should China disappoint on announcement and execution, investors will likely be quick to pounce back into India equities," Nomura said.  End

US$1 = INR 83.93

Reported by Steffy Maria Paul

Edited by Namrata Rao

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