Stock market outlook: No significant and prolonged corrections expected. Nifty may see an upturn in its teenage demographic by March 2025: UBS

The Indian stock market has seen a sharp correction, with the benchmark Nifty 50 index down more than 4% from its all-time high. Continued outflow of foreign capital, weak corporate profits in the fourth quarter, and uncertainty about the general election are weighing on market sentiment.

Indian stocks are likely to trade with a downward bias ahead of the general election results, but analysts do not expect the correction to be prolonged as the market is expected to provide buying opportunities. .

Premal Kamdar, an analyst at UBS Securities, said he remains cautious on small- and medium-capitalization (SMID) companies as they have rich valuations and there is a downside risk to earnings in a rising oil price scenario.

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Analysts at UBS remain optimistic about India’s economic outlook in their monthly outlook report, buoyed by better-than-expected momentum in domestic economic activity. However, geopolitical uncertainty may pose downside risks.

Take a look at UBS’s outlook on India’s stock market, economy, bonds and currency.

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UBS believes the outlook for earnings growth remains healthy. But with the tailwinds from margin expansion largely receding, the focus could shift to increasing revenue. The company expects Nifty50’s FY25 profit growth to be 12-13%.

“We expect Indian equities to trade with a downside bias in the near term amid global headwinds and the ongoing general elections in India. However, in our view, resilient macro, healthy The combination of corporate earnings, strong equity inflows should limit the downside and provide buying opportunities, with no significant and prolonged correction expected for the Nifty index in the teens by March 2025. We expect an increase in the first half,” Kamdar said.

Also read: Amit Shah predicts the Indian stock market after Lok Sabha election results

UBS is cautious on small- and mid-cap (SMID) companies due to rich valuations and downside risks to earnings in a rising oil price scenario, superior profitability and relatively low sensitivity to high oil prices Despite this, they prefer large-cap stocks over small- and medium-sized stocks, which have large valuation differences. price.

Kamdar recommends investors lock in profits with SMID and increase exposure to large-cap stocks.

“We currently prefer domestic related sectors (automotive, consumer durables, industrial/infrastructure, utilities, real estate, etc.) over exports because these sectors have strong orders, stable margins and healthy “This is because the balance sheet allows for long-term growth in related sectors (such as IT, chemicals, metals and mining) that remain vulnerable to uncertainty in the global growth outlook,” he said.

fixed income

The Reserve Bank of India (RBI) is likely to maintain its policy stance for some time, and given the current global and domestic macro environment, UBS sees limited scope for rate cuts this year. We expect a shallow 50 bps rate cut cycle by the RBI is likely to begin in 2025.

Kamdar expects India’s 10-year bond yields to remain range bound in the near term and gradually decline by 50-75 bps by the end of next fiscal year.

Also read: JPMorgan plans to include India in its emerging market bond index from June. What impact will that have on Indian bonds and yields?

“Our view is that resilient macro conditions, fiscal consolidation leading to lower borrowings and inclusion of Indian government bonds in the global JPMorgan and Bloomberg bond indexes led to large FPI inflows into the bond market. This is supported by the fact that, amid heightened uncertainty about the timing of rate cuts, medium- and long-term bonds not only benefit from a bullish steepening due to improved liquidity conditions, but also benefit from rate cuts in line with the timing of rate cuts. “We think we’re in a sweet spot because we’re in a good position to be able to get that to happen,” he said.

Rupees

India’s resilient macro environment, strong external buffers and steady FPI inflows driven by its inclusion in global bond indexes bode well for rupee stability. Nevertheless, the recent rise in the US dollar index against the unfavorable backdrop of prolonged interest rates has weakened sentiment against all emerging market currencies, including the rupee, the UBS report said.

Also read: Samco Mutual Fund’s Viraj Gandhi says markets will remain volatile until after the 2024 general elections.

indian economy

The outlook for the Indian economy looks solid as domestic economic activity continues to expand, supported by strong investment demand and an improving global environment. UBS raised its real GDP forecast for 2024 to 8% from 7.6% a year earlier, following better-than-expected economic momentum in the March quarter.

Although we remain optimistic about India’s GDP growth outlook and expect real GDP growth to be 7% YoY in FY25E and FY26E, rising geopolitical tensions pose risks to the growth outlook. We believe that several macro risks that may pose a threat have emerged.

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Disclaimer: The views and recommendations expressed above are those of individual analysts or brokerages and not of Mint. We recommend checking with a certified professional before making any investment decisions.