Is the Outlook for Indian Equities Now Neutral Despite Global Headwinds?

New Delhi, June 9 (NationPress) A recent report from SBI Mutual Fund has transitioned the outlook for Indian equities to neutral from an underweight position for 2024, as domestic benchmark indices continue to show impressive performance amidst global uncertainties.

This adjustment from underweight to neutral can be seen as a more optimistic market perspective, providing better long-term entry points for investors. However, the report specifies, “we are not yet prepared to endorse overweight positions.”

During May, Indian equities exhibited gains despite ongoing tariff uncertainties, with Nifty and Sensex rising by 1.7 percent and 1.5 percent on a month-on-month basis. Interestingly, Foreign Portfolio Investors (FPIs) became net buyers, even as the overall market breadth showed signs of weakening.

The Q4 FY25 corporate earnings report revealed modest single-digit profit growth, which aligned with expectations, helping to stabilize any incremental earnings downgrades experienced in May.

While sectors such as metals, healthcare, capital goods, PSU banks, and chemicals demonstrated healthy profit growth, the results from private banks, combined with pressure from the Oil and Gas sector (excluding OMCs), negatively impacted overall profitability.

The report forecasts earnings growth at approximately 10.5 percent for FY26, stating that a revival in India’s economic growth is crucial for achieving these expectations.

In terms of valuations in the Indian equity market, they have become more appealing following a recent drop in Indian 10-year bond yields and a de-rating of price-to-earnings multiples.

According to the report, “Our preferred measure — the earnings yield to bond yield spread — now indicates more reasonable valuations compared to last year’s peaks.”

Furthermore, the report mentions, “We believe quality and long-term fundamentals will be prioritized over the narrative-driven and somewhat speculative price movements seen over the past year.”

The current market fluctuations should redirect attention towards fundamentals.

It suggests that the market will increasingly favor companies with strong business models, visible long-term earnings growth, and sustainable cash flows.

Q4 FY25 real GDP demonstrated a growth of 7.4 percent, surpassing both RBI’s and market expectations of 7.2 percent and 6.8 percent, respectively.

This growth was significantly driven by a robust increase in fixed asset investments and ongoing strength in agricultural activities, although aggregate private consumption lagged behind.

The report anticipates India’s growth to stabilize at around 6-6.5 percent in FY26. While current tariff issues seem to have been resolved, global policy uncertainty remains a risk to India’s growth trajectory.