The Indian stock market is poised for 12-15% returns in the coming year, driven by the industrial, IT, and export sectors, despite recent earnings slowdowns. Support from the RBI’s interest rate cuts and strong GDP growth underlie this positive outlook, despite market volatility and global uncertainties. Investors are encouraged to begin allocations cautiously into Indian equities as the economic landscape evolves.
The Indian stock market is expected to see returns of 12-15% over the next 12 months, primarily focusing on the industrial, IT, and export sectors. While the economy experiences a cyclical slowdown, the corporate earnings growth rate has decreased from 15-20% to 8-10%, affected by high interest rates, impending elections, and global political developments. Currently, the equity market is trading at 19 times earnings, a level reminiscent of the 2020 Covid lows.
India’s GDP growth remains robust at over 6%, with banks maintaining low non-performing assets and solid balance sheets, capable of supporting capital expenditures that are projected to reach ₹11 lakh crores within the next year. The Reserve Bank of India (RBI) is anticipated to embark on an interest rate-cutting cycle, potentially reducing rates by 50 basis points in April and June, as it aims to support growth amidst declining inflation.
Despite stagnant earnings forecasts leading to a stock price decline of 30-50% in various sectors, including defense and industrials, the information technology sector is predicted to exhibit positive earnings guidance due to a resurgence in demand from the United States. Earnings growth for the Indian market is projected at 12-14% over the next 12 months, with a more pronounced acceleration expected by 2027.
Market conditions indicate that a rally could commence within a quarter, particularly favoring a multicap approach to capitalize on potential upgrades in specified sectors. The broad-based sanctions from the United States are not expected to significantly affect India as a domestic-facing services economy.
While there may be volatility in the market, analysts believe that the pain of declining earnings is nearing its end. Future rate cuts are expected to halt the drop in earnings, facilitating an underlying market recovery. A declining cost of capital will likely encourage corporate expenditures, which in turn can spur economic growth.
The Indian rupee is projected to depreciate to 88-90 against the U.S. dollar, while inflation rates continue to decline, signaling a potentially favorable investment environment. With over 7,000 publicly traded companies in India and an increasing number of private firms entering the market, investors are advised to start allocating funds into Indian equities cautiously in the upcoming weeks, as uncertainties around tariffs and inflation persist.
In summary, the Indian stock market is positioning itself for potential returns of 12-15% over the next year, underpinned by structural economic strengths and anticipated interest rate cuts. While short-term volatility is expected, especially with corporate earnings under scrutiny, a positive outlook for sectors such as IT and exports suggests a favorable environment for equity investment. The ongoing decline in interest rates and inflation further contributes to a promising investment landscape as India transitions into a recovery phase.
Original Source: www.livemint.com
