Indian equities are expected to exhibit a muted performance for the rest of 2024, following a 12% gain thus far this year, according to a recent analysis by Nomura. The brokerage firm maintained its year-end target for the Nifty at 24,860 points, a figure established after the Lok Sabha election results in June, says a report in the Financial Express.
On Thursday, the Nifty saw a slight decline of 0.03%, closing at 24,315.95 points. This minor drop follows a period of unexpected and intense market rallying, which has caught many market experts by surprise. “The intensity with which the market rallied post-June 4 has been much stronger than what we thought,” stated Saion Mukherjee, Nomura’s head of equity research for India. “The question is has anything changed for us to change our view.”
Market Rally Despite Political Uncertainty
The sharp rally in the market over the past month has been particularly surprising given the formation of an unexpected coalition government at the Centre. Despite this political uncertainty, the market has shown resilience, bolstered by various factors including sector-specific opportunities and broader economic trends.
Sector-Specific Opportunities
Nomura identified particular sectors where opportunities still exist, despite the broader concerns about stretched valuations. According to Mukherjee, there are promising prospects in the power and capital goods sectors. However, he advised investors to be selective within these spaces, emphasizing the importance of companies with technical expertise or distinctive competitive advantages that afford them strong pricing power.
Private Capital Expenditure as a Key Driver
A major focus for the market moving forward is the pick-up of private capital expenditure (capex). Mukherjee highlighted that the medium-term growth in corporate earnings is highly contingent on the performance of private capex. “If that doesn’t play out as expected, there could be questions about the long-term earnings growth,” he noted. The execution of various schemes and policies, particularly those targeting manufacturing, will be crucial trends to watch.
Valuation Concerns: Large-Caps vs. Mid- and Small-Caps
Within the overall market, Nomura pointed out that large-cap stocks are currently more reasonably valued compared to mid- and small-cap stocks. This assessment is based on the stretched valuations observed in the latter categories, making large-caps a more attractive option from a valuation perspective.
Cautious Outlook on Automobiles and Consumer Discretionary Sectors
Mukherjee expressed caution regarding the automobile and consumer discretionary sectors. The slowing growth and disruptions caused by the adoption of new technologies and the expanding digital market are significant concerns. These factors are expected to impact the performance of companies within these sectors, suggesting a cautious approach for investors.
Market Sentiment and Economic Indicators
The market sentiment has been buoyed by a range of economic indicators and policy measures. However, the optimism is tempered by the awareness of potential risks and uncertainties, both domestic and global. Investors are advised to remain vigilant and consider these factors when making investment decisions.
Year-End Target and Market Projections
Nomura’s retained year-end target of 24,860 points for the Nifty underscores a cautiously optimistic outlook for the remainder of the year. This target, set post the Lok Sabha elections, reflects a balanced view considering both the positive momentum and the underlying risks in the market.
Conclusion
As Indian equities navigate through the rest of 2024, investors are advised to exercise caution and be selective in their investments. The significant rally post-June has been stronger than anticipated, raising questions about future market movements. With opportunities identified in the power and capital goods sectors, and a need for vigilance in the automobile and consumer discretionary sectors, the market presents a mixed bag of prospects.
The performance of private capex will be a critical determinant of corporate earnings growth, making it a key area for investors to monitor. Overall, while the market’s resilience has been notable, the emphasis on selective and informed investing remains paramount to navigating the evolving landscape of Indian equities.
