As the key Indian benchmark indices are on the verge of recording their longest period of monthly losses in more than 20 years, some analysts see the $3 trillion market positioning to bounce back, Bloomberg reported.
The Nifty 50 Index is on track for its fourth straight monthly decline, its worst losing streak since 2001. The gauge is down nearly 9% in that span, compared with a gain of about 3% in the MSCI Asia Pacific Index, the report said.
Despite a strong performance in the past two years, Indian stocks are currently the worst-performing in Asia in 2023. The decline is attributed to concerns over monetary policy tightening and weak investor sentiment due to value erosion at the Adani Group, it added.
However, several strategists believe that the current situation presents an opportunity for a rebound, citing attractive valuations and robust domestic support, according to the report.
"I view the recent underperformance as purely mean reversion after India’s stellar outperformance last year, especially relative to China," Mark Matthews, head of research at Bank Julius Baer & Co was quoted as saying in the report. "There is no fundamental reason for India’s longer-term positive trend to change."
Relative valuations have become more attractive for Indian stocks after the recent underperformance, according to Citigroup Inc. analyst Surendra Goyal, said the report. The Nifty is trading at about 17 times one-year forward earnings, below its five-year average of 19 times, it added.
"While the growth outlook remains mixed, we note that Citi economists expect India to be the fastest-growing large economy in 2023," Goyal wrote in a note earlier this month. “Also, we expect the limited impact from the recent global banking turmoil on India,” he added.
The high premium enjoyed by Indian stocks over their Chinese peers has narrowed as well. The ratio of the MSCI India Index’s forward earnings valuation to that of the MSCI China Index has fallen to 1.4 compared with its five-year average of 1.7, the report noted.
Amid the concerns over geopolitics and bank stability rattling markets around the world, Indian equities are seen as relatively calm thanks to large, steady inflows from local investors. The India VIX measure of stock volatility has declined over the past year and is more than five points below the Cboe VIX, it said.
"Domestic liquidity is still supportive," Aditya Suresh, head of India research at Macquarie Capital Ltd, was quoted as saying. "That is something that has been supportive of the India story these past two years. Domestic investors have been holding this market together."
Foreign investors, meanwhile, are on track to be net buyers of Indian shares for the first month since November. They have purchased a net of $1.4 billion so far in March.
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