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Informist, Wednesday, Nov. 27, 2024

 

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--Emkay Wealth: Growth remains resilient in India 
--Emkay Wealth: Geopolitical risks to create overhang for commodity prices 
--Emkay Wealth: India may benefit from global trade partnerships 
--Emkay Wealth: Expect India to grow by 7% in 2024, 6.5% in 2025 
--CONTEXT: Emkay Wealth Management officials in webinar on market outlook 
--CONTEXT: Emkay Wealth Management is an arm of Emkay Global Financial Svcs 
--Emkay Wealth: Downturn in global manufacturing continued in October 
--Emkay Wealth: 3 of 5 global PMI components signalled contraction in Oct 
--Emkay Wealth: India growth slowing down but better than global 
--Emkay Wealth: Private, rural consumption slow 
--Emkay Wealth: Health of banking sector, credit growth good 
--Emkay Wealth: Rate cuts may lead to outflow of funds from US 
--Emkay Wealth: US fund outflows to chase high risk, high return assets 
--Emkay Wealth: India's trade gap may remain high on crude oil imports 
--Emkay Wealth: FY25 growth to be impacted due to domestic issues 
--Emkay Wealth: Brent crude prices rangebound last 3 months, to remain so 
--Emkay Wealth: Brent prices rangebound as US self-reliant, China demand weak 
--Emkay Wealth: Fall of US dollar may lift Brent crude prices gradually 
--Emkay Wealth: Expect RBI to cut repo rate over next two policy meets 
--Emkay Wealth: Net inflows into Indian stock market remain strong 
--Emkay Wealth: Annual inflows into stock market via SIP remain strong 
--Emkay Wealth: See Nifty 50 EPS growth at 7.9% in FY25 vs 18.9% in FY24 
--Emkay Wealth: Indian equites continue to be expensive relative to growth 
--Emkay Wealth: Ratio of Indian equity market cap to GDP at 15-year high 
--Emkay Wealth: Expect AIF, active fund managers to do well 
--Emkay Wealth: Breadth of Indian equity mkt has grown led by more new IPOs 
--Emkay Wealth: Gold returns on par with equities over last 20 years 
--Emkay Wealth: Don't see investors jump at every IPO 
--Emkay Wealth: Investors will look for IPOs of unique businesses

 

MUMBAI – While the Indian equities, including the mid, small, and micro-cap stocks, are over-valued, they are likely to remain buoyant over the next five years, Emkay Wealth Management said in an online media interaction Wednesday. The firm said the ratio of the Indian equities market capitalisation to GDP is at a 15-year-high, suggesting the over-valuation of the stocks.

 

Although the growth in the Indian benchmark index Nifty 50 has been broad-based in the last four years, it has slowed down to 2.75 times from the low hit during the COVID-19 pandemic, compared with the six-time rally it posted between 2003 and 2008, Emkay Wealth said. The top 100 companies now account for about 60% of the total market cap against almost 87% in 2008, the firm said. The equities market has also widened more than what the indices indicate, Emkay Wealth said, adding that this was because of an increased listing in the last four years. The bourses saw over 6,000 listings in the last four years compared with over 2,000 listings in 2003-08. With the increase in the market breadth, stock specific opportunity will also remain for the next 2-3 years, the firm said.

 

Despite estimating a slower Nifty 50 earnings per share growth of 7.9% for the current financial year compared with the 18.9% growth posted in 2023-24 (Apr-Mar), the firm expects the market to remain buoyant due to strong inflows by domestic investors. The firm, however, said the growth in the market will likely remain sideways, if not fall, before rising "because at the end of the day it is earnings growth, which is what's going to drive the markets", Emkay Wealth said. The firm expects the Nifty 50 EPS to grow 15.8% in FY26.

 

Domestic investors continue to pour money into equities, especially through systematic investment plans, or SIPs, the firm said. So far in FY25, SIPs accounted for about INR 1.59 trillion inflows into the Indian equity market, up from INR 1.07 trillion in the same period in the previous financial year, Emkay Wealth said.          

 

On the primary market, the firm said the increased number of initial public offerings has sucked in a good amount of liquidity which has been coming into the markets. While there are many listings expected going forward, there will likely be some moderation in investors' interest, the firm said. Emkay Wealth said investors will likely look for unique businesses and interesting ideas instead of just jumping onto any new offer.

 

GOLD

Adding gold to the portfolio not only adds diversification but also lowers the risk, thus, optimising the risk-return ratio of the portfolio, Emkay Wealth said. Gold returns have been on a par with equities and above bonds since the end of the gold standard, the firm said. Returns on gold have also been on a par with global equities between Dec. 31, 2003, and Dec. 31, 2023.

 

The firm also said gold has a negative correlation to global equities during a sell-off, giving good returns with minimal downside risk. On volatility, Emkay Wealth said gold is slightly more volatile than global stocks. However, it has been less volatile than emerging market stocks, alternative investment funds, and commodities because of its scale, liquidity, and diverse sources of demand, the firm said.     

 

GLOBAL OUTLOOK

While there is "some kind of semblance of calmness" in the Russia-Ukraine and West Asia situation, the regime change in the US in January will likely lead to some trade and tariff wars, Emkay Wealth said. The firm said geopolitical risks continue to create an overhang for commodity prices. The firm said the global economy will likely grow 3.2% in 2024 and 2025 each, compared with a 3.3% growth in 2023. While the GDP growth of emerging markets and developing economies is expected to slow down to 4.2% in 2024 and 2025 from 4.4% in 2023, the GDP growth of advanced economies is expected to increase to 1.8% in 2024 and 2025, from 1.7% in 2023, Emkay Wealth said.

 

The firm said the downturn in global manufacturing continued in October with three out of five Purchasing Managers' Index components contracting in the month. However, the fall has decelerated from September's nadir, the firm said. While India, Spain, and Brazil were at the top on the basis of Purchasing Managers' Index growth in October, Austria, Germany, and France were at the bottom. The growth in the Purchasing Managers' Index of the US for October was lower than the growth in the overall world Purchasing Managers' Index, Emkay Wealth said.  

 

On the Federal interest rate, the firm said "..there is all the reason why US rates could also gradually cut and rates could come down because inflation has come down towards their long-term average rate which they are targeting around 2%". The Federal interest will likely be bridged and brought down to around 4%, the firm said. Emkay Wealth said it does not expect high interest rates in the US post-regime change as inflation was low even in the last four years of the Trump regime.    

 

Further cuts in the Federal interest rate will lead to outflow of funds from the US in order to chase high risk and high return assets in the emerging markets, the firm said. There have been large outflows from emerging markets in the last couple of months, Emkay Wealth said, and added that these outflows will likely come down and turn into inflows.

 

DOMESTIC OUTLOOK

While most of the economies, including Europe and China, are experiencing slower growth, in India growth will likely remain resilient, Emkay Wealth said. Although it expects India's GDP growth to moderate due to domestic issues, after a large rebound in FY22, it said India's growth is still better than the global growth. The firm expects the country's GDP to grow 7% in 2024 and by 6.5% in 2025.

 

The firm attributed the slower expected growth rate to a slowdown in private and rural consumption. Although government spending remains strong, tighter fiscal policy and high interest rates are likely to dent growth, Emkay Wealth said. The firm said rural consumption is slow because rural areas are highly sensitive to inflation. However, reduction in interest rates is expected to boost consumption in these areas.

 

While India's growth is likely to be least impacted by geopolitical risks, it may benefit from the same as the global trade partnerships tilt in favour of nations that have managed to remain largely neutral, Emkay Wealth said. On the interest rate in India, the firm said the Reserve Bank of India's change of stance to 'neutral' from 'withdrawal of stance' and high liquidity in the system indicate a softer monetary policy. The firm said it expects the RBI to cut policy rates to align it to the requirements of domestic demand for growth and credit. Emkay Wealth expects the RBI to cut the repo rate over the next two monetary policy meets.

 

Lower government borrowing plans for the current financial year and the inflows of funds post-inclusion of Indian government bonds in the J.P. Morgan Bond Index led to a fall in the benchmark yields, irrespective of the RBI cutting the repo rate, Emkay Wealth said. Currently, the banking sector's health and credit growth are good in India. The firm said portfolio fund managers, alternate investment funds, and active fund managers will likely do good going forward. 

 

BRENT CRUDE OIL

While Brent crude oil prices have not broken the $75 to $76 per barrel levels for a long time now, high crude oil imports may continue to weigh on India's trade gap, Emkay Wealth said. The firm said Brent Crude Oil prices have remained range bound in the last three months despite geopolitical tensions due to weak demand from China and self-reliance of the US in terms of crude oil requirements. The firm further said the fall of the US dollar may lift Brent Crude Oil prices gradually.

 

Emkay Wealth Management is a subsidiary of Emkay Global Financial Services Ltd. Wednesday, shares of Emkay Global closed at INR 327.15 on the National Stock Exchange, up 5%.  End

 

Reported by Aman Aryan

Edited by Akul Nishant Akhoury

 

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