India’s financial market assets including equities, private markets, bond yields, are expected to benefit structurally from a favourable macroeconomic backdrop over the next few years. According to a report by Standard Chartered, India’s corporate profit cycle remains the strongest since the 2004-08 cycle as the benchmark Nifty index EPS grew at an average 20 per cent between FY21 and FY23 and is expected to grow by a further 18.7 per cent and 16.6 per cent in FY 2024 and 2025 respectively.
Indian equities remain poised to benefit from several strong multi-year structural drivers. These drivers include:
1. A diversified economy with robust domestic macro fundamentals that would be supportive of earnings
2. Healthy corporate balance sheets and strong financial sector health that would ensure more sustainable earnings growth
3. A decline in foreign exchange risks and, volatility in earnings due to a more stable domestic currency
4. A sustained corporate earnings growth cycle driven by increased formalization, improving capacity utilization and efficiency gains from technological advancements
5. Lower reliance on foreign investor inflows due to improvements in domestic financial inclusion, which has resulted in more sustained domestic flows.
Standard Chartered expects the current equity cycle to be analogous to the 2003-2008 bull cycle when output growth rose sharply, inflation stayed stable and improvements in productivity drove a rise in investments.
During that period, higher investments did not lead to a widening of the current account deficit as the rise in savings was led by improvement in public savings and private corporate savings, according to the bank.
Outside of structural drivers, India’s key macro-economic parameters are on a sustainable trend, noted Standard Chartered. The country’s external debt-to-GDP remains low at 18.4 per cent for FY23, tracking below its 10-year average of 21.6 per cent. The credit growth has risen to a decade high of 15 per cent year-on-year for fiscal 2022-23.
The capacity utilization has risen to 74 per cent in Q3 FY 2023, above the long-term trend, said the report. More supportive external conditions have narrowed the current account deficit (now estimated at about 2 per cent of GDP in FY24 and within its long-term trend), according to the bank.
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Updated: 19 Aug 2023, 09:48 PM IST
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