The Indian equity markets have been rangebound in the past 18 months due to multiple global and domestic factors. Manishi Raychaudhuri, Asia-Pacific equity strategist, BNP Paribas, believes that FY24 will be a year of ‘middling’ returns for the Indian market. He has an S&P BSE Sensex target of 66,000 by the end of the calendar year 2023 (CY23).
In an interview with Business Standard, the market expert said that careful sector and stock selection are warranted in the Indian market. In the Indian allocation of BNP's Asian model portfolio, he is overweight on private banking, select insurance, consumer durables, health care, and information technology services. Meanwhile, he is underweight on materials, consumer staples, and industrial.
"Our focus is on companies with a strong return on equity, robust cash generation, and likely stability in the earnings estimates," he highlighted.
Commenting on the macro aspects, the expert noted that India’s macroeconomic outlook appears stable, with strong growth in non-food credit and goods and services tax collection, deleveraged corporate balance sheets, and robust government capital expenditure.
However, he also pointed out that the March quarter results have been disappointing for India and Asia.
"Currently, the aggregate reported earnings for companies in Morgan Stanley Capital International (MSCI) Asia (excluding Japan) have been 15-16 percent lower than consensus estimates, and for those in MSCI India have been 18.6 percent lower. The consensus earnings growth estimate in CY23 for MSCI India is 21.3 percent and that for the calendar year 2024 is 18 percent. However, we think there could be a downside to these estimates — especially in consumer discretionary, energy, materials, and industrial," he said.
Meanwhile, he also believes that in the near term, some of the Asian EM peers, particularly those in North Asia, could outperform India. China and South Korea, for example, are trading at sharp valuation discounts to Asia. But investor options in these markets — especially in China — are vast, and cheap valuations make these markets relatively attractive, he added.