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After worst streak in 22 years, India’s $3 trn mkt positioned for a rebound

India,

By Chiranjeevi Chakraborty and Ashutosh JoshiSome analysts anticipate a rebound in the $3 trillion market position given that a significant Indian stock benchmark is about to experience its longest streak of monthly losses in more than two decades.

 

The NSE Nifty 50 index is on track for its worst monthly decline since 2001, its fourth in a row. The MSCI Asia Pacific index has gained nearly 3%, while the gauge is down nearly 9%.

 

Due to Adani Group’s value erosion and low sentiment, Indian stocks are expected to be Asia’s worst performers in 2023, after outperforming for the past two years. However, a lot of strategists think that cheap valuations and strong domestic support are preparing the market for a rebound.

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“I view the recent underperformance as purely a reversal from India’s impressive performance last year, particularly relative to China,” said Mark Matthews, head of research at bank Julius Baer & Co. Change.”

 

Citigroup Inc. According to analyst Surendra Goyal, relative valuations have become more attractive for Indian stocks after the recent poor performance. The Nifty is trading at around 17 times one-year earnings, which is lower than its five-year average of 19 times.

“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. “Furthermore, we expect limited impact on India from the recent global banking turmoil.”

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The high premium fetched by Indian stocks over Chinese rivals has also come down. The forward earnings valuation of the MSCI India index has fallen to 1.4 compared to the MSCI China index’s five-year average of 1.7.

This is “another trigger for outperformance” with continued strong domestic demand by Indian stocks and the end of a local central bank tightening cycle, Christopher Wood, global equity strategist at Jefferies Financial Group Inc., wrote in a recent note.

 

This was echoed by Morgan Stanley, which this week upgraded Indian equities to equal-weight on its shrinking valuation premium versus emerging-market peers as well as on the benefits of a resilient local economy.

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Indian equities are seen as relatively calm in the midst of global market concerns about geopolitics and bank stability because of the large and consistent inflows of local investors. The India VIX, a measure of stock volatility, is now more than five points lower than the Cboe VIX after a year of decline.

 

Aditya Suresh, head of research for India at Macquarie Capital Ltd., stated, “Domestic liquidity is still supportive.” “This is something that has been supporting the India story in the last two years.” This market is held together by investors from the country.

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In the meantime, for the first time since November, foreign investors are on track to become net buyers of Indian stocks. In March, they have purchased $1.4 billion in total.

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