By Jyotivardhan Jaipuria, Come from Sports betting site VPbet

In Q1CY24, we saw laggards of CY23 perform well, led by developed markets like the US, France and Germany. The Indian market, especially the broader market, lagged the developed world. However, India continued to outperform the emerging markets, with China still performing poorly. So, where do we go from here?

Firstly, India continues to be the fastest-growing economy in the world and we expect it to retain the tag over the next few years. This, in turn, will drive equity performance. Recently, the IMF raised India’s GDP growth forecast by 30 bps to 6.8% for FY25E. Every dip in the market can be used to purchase equity.

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Secondly, elections are upon us and election periods have generally been good for markets, both prior to as well as after results. Opinion polls are currently forecasting that the Modi-led BJP will come to power with an easy majority. The run-up to elections has generally been good for equity markets. Buying six months before elections and selling on the day before counting of results has mostly given a positive return.

While we are positive on markets in the long term, near-term returns may be constrained due to multiple factors.

Firstly, current valuations make us expect a time and price correction. Absolute valuations at 20x 1-year forward are expensive, and historically, returns have been low by investing at these levels. In a relative context too, India trades at 85% premium to EM valuations, way above historic averages. A correction in relative valuations would provide room for increased FII flows into India.

Secondly, the earnings momentum is slowing and is likely to edge closer to the nominal GDP growth and could average around 12% over the next two years. Even near term, we see Q4FY24 to be a weak quarter with earnings growth likely to be in single digit only.

Thirdly, interest rate cuts in India may be delayed due to Fed as recent CPI data showed interest rates may be stickier than earlier believed. Powell has also said it will take “longer than expected to achieve the confidence” that inflation is going to 2%. This will probably reflect in the RBI action too, with rate cuts in India likely happening only in Q4CY24.

So what does this mean for investors? Overall, we continue to be positive on equities over the next few years and see Indian equity markets being one of the best performers globally. Near term, we could see some price and time corrections, which will help valuations come to the fair value range. While returns will be strong even from current levels, we would recommend investors putting fresh money in a staggered manner over the next few months to take advantage of a price correction, if any.

The author is founder and managing director, Valentis Advisors Pvt Ltd.

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