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Indian Equities May Re-Rating as Earnings Momentum Builds
A report says Indian stocks may perform better later in the year if company profits begin growing faster.
It says investors may use the current period of sideways prices to gradually buy shares instead of chasing stocks that have already risen a lot.
Companies involved in construction, electricity, banks and business services could benefit from India’s growth.
Smaller companies are still expensive compared with large companies.
Foreign investors have shown some renewed interest after a long period of caution.
India’s economic growth is expected to remain strong.
However, expensive oil and global political tensions could hurt markets.
High United States interest rates may also reduce the amount of money flowing into stocks.
Investors will closely watch the United States Federal Reserve’s September 16 decision.
OmniScience Capital says Indian equities could enter a valuation re-rating phase as earnings strengthen in the second half.
The firm views the current market consolidation as an accumulation opportunity, while warning investors against chasing stocks that have already risen sharply.
Capital expenditure, power, infrastructure, banking and business services are identified as potential opportunity areas.
Mid-cap and small-cap valuations remain elevated, with the Nifty Smallcap 250 near 34 times earnings and the Nifty Midcap 150 near 30 times, versus about 20 times for the Nifty 100.
Higher crude prices, elevated global interest rates, geopolitical tensions and the United States Federal Reserve’s September 16 decision remain key risks and market triggers.
- Who
- OmniScience Capital, led in the report’s comments by Ashwin K. Shami, and investors in Indian equities.
- What
- A report forecasts a possible second-half valuation re-rating for Indian equities as earnings momentum and institutional interest improve.
- Where
- Indian equity markets, with global influences from the United States and US-Iran tensions.
- When
- The potential re-rating is expected in the second half; the United States Federal Reserve’s September 16 policy decision is a near-term market trigger.
- Why
- Expected earnings growth, capital expenditure, resilient credit growth and renewed institutional buying could support equities, while crude prices, interest rates and geopolitical uncertainty pose risks.
Re-Rating and Opportunity Case
Valuation and Macro-Risk Case
Market direction
Re-Rating and Opportunity Case
OmniScience Capital expects stronger second-half earnings and returning institutional capital to support a valuation re-rating.
Valuation and Macro-Risk Case
The report warns that elevated valuations and limited room for earnings disappointments could cause some stocks to de-rate.
Investment approach
Re-Rating and Opportunity Case
The current consolidation is viewed as an accumulation opportunity, particularly in businesses tied to capital expenditure, power, infrastructure, banking and business services.
Valuation and Macro-Risk Case
Investors should remain selective, especially in mid-cap and small-cap shares, and avoid chasing stocks that have already delivered strong returns.
Economic outlook
Re-Rating and Opportunity Case
Resilient credit growth, rising electricity demand, recovering corporate capital expenditure and estimated FY27 real GDP growth of about 7% support the bullish view.
Valuation and Macro-Risk Case
Elevated crude oil prices, higher global interest rates, geopolitical uncertainty and US-Iran tensions could pressure liquidity, commodities and investor risk appetite.
Key facts
- Report author
- OmniScience Capital
- Estimated FY27 real GDP growth
- Around 7%
- Nifty Smallcap 250 valuation
- Around 34 times trailing earnings
- Nifty Midcap 150 valuation
- Nearly 30 times trailing earnings
- Nifty 100 valuation
- Roughly 20 times earnings
- United States 10-year Treasury yield
- Around 4.6%-4.7%
- Key near-term trigger
- The United States Federal Reserve’s September 16 policy decision
Sources
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