Brokerage firm Nomura expects India to register a Compounded Annual Growth Rate (CAGR) of 6.6 percent, between financial year 2023-2030. This will mark the strongest phase of growth since financial year 2010, and close to the growth seen between financial year 2003-2010, which was aided by a surge in capex.
The brokerage expects reforms and a higher capex to help India grow by nearly 6.6 percent over the medium-term. Although it believes that slowing global growth and delayed impact of RBI's rate hikes can impede near-term growth, India's medium-term outlook appears brighter.
Nomrua also sees India in a sweet spot over the next decade as it is emerging as a leading beneficiary of shifting supply chains. Other factors will include focus on reforms, incentives for manufacturing firms under the PLI scheme, digitisation of public services, and a focus on public capex.
Correction A Buying Opportunity...
The brokerage expects Indian equities to continue trading at a premium to its global peers. This will be driven by stable macro conditions, a positive medium-term growth outlook, and higher earnings visibility. Nomura expects domestic inflows through SIPs to continue to support the elevated valuations.
Indian markets traded at an average premium of 45 percent to the Emerging Market index, which expanded to over 90 percent, before scaling back to around 60 percent currently, according to Nomura. It also sees limited earnings disappointment from a medium-term perspective due to a resilient growth outlook.
Equity markets present limited upside potential in the near-term, as the market negotiates the ensuing cyclical slowdown, but foundations are in place for sustainable growth over the medium to long term. Therefore, we would view any market correction as an opportunity to buy.
Nomura's Sectoral Preferences
Nomura prefers domestic-oriented sectors and companies and sectors, which are an immediate beneficiary of the government's investment-led growth push. Its top picks within this space are:
Financials are another preferred pick from Nomura as a direct play on the India growth story. Its preferred picks include ICICI Bank, Axis Bank and IndusInd Bank. Indian banks are well-placed to capitalise on growth, according to Nomura.
On the flip side, Nomura expects demand uncertainty is likely to persist in financial year 2024 for the Indian IT services companies, since tech budgets are likely to be hit due to cost savings. "The sector valuation is high and margin improvement is likely to be gradual due to the weaker growth outlook," the ote said.
Lastly, it expects the consumer discretionary space to be a long-term beneficiary of India's growth but the near-term, it envisages a correction in the appliances space as valuations are elevated and a cyclical slowdown is ongoing. Within the Auto sector, it expects PVs/MHCVs to slow, while mass segments like two-wheelers may recover due to low inflation and a low base.
First Published: Jun 5, 2023 10:19 AM IST
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