Notwithstanding a slowdown in the large economies such as those of US, UK and Europe, India’s economy is seen to be growing since there is a limited impact of other economies on India’s GDP/ profit growth.
This is reflected, among other key points, in the Tata Mutual Fund’s Equity Outlook Report for March 2024.
While commenting on the common challenge to the global economy, the report refers to the urgent need to bring inflation down without causing too much collateral damage to economy and labour markets.
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Although inflation has moved down from its peak, it’s still way above the target, shows the report.
The report further highlights that the direction of monetary policy in advanced economies is increasingly unambiguous now since bringing down inflation is within target range.
Sectoral outlook
While referring to the sectoral outlook, the report is positive on banks, capital goods and manufacturing. It is neutral on IT and rural consumption and negative on urban consumption and commodities.
In reference to a balanced portfolio strategy, the report lays emphasis on giving an active exposure to mid and small caps in order for investors to capitalise on investment cycle led economic growth.
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Record valuations
The report shows that one-year forward PE stands at 20 times, higher than the historical average. In P/E terms, the Nifty 50 is trading at 80 percent premium to the MSC EM index, above its historical average of 49 percent.
The report attributes the high valuation to stable macros, broad based earnings growth and robust banking/ corporate sector health. Crude price remains a key risk but chances of escalation in the middle east conflict seems to be contained.
Long-term drivers
There are several long-term drivers for India’s growth. These include pickup in the investment cycle, pickup in the credit cycle, pickup in real estate and tailwinds for Indian manufacturing sector and the industrial sector.
Additionally, India’s dependency ratio has consistently fallen from 73 percent in 1990 to 47 percent in 2022. This is expected to further fall to 30 percent in 2050.
Forex reserves
Foreign exchange reserves grew to $626 billion in the month of March against $617 billion in the preceding month.
Additionally, rupee traded within a relatively narrow range in Feb with support around 82.70 levels and resistance around 83.25 – 83.40 levels.
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Published: 19 Mar 2024, 05:32 PM IST