A bronze bull statue outside the Bombay Stock Exchange building in Mumbai, India, on Monday, June 3, 2024. India's stock futures jumped after exit polls indicated a resounding victory for Prime Minister Narendra Modi's ruling party in general elections that concluded Saturday.
Earnings for Nifty 50 companies rose 3% in the first quarter over the past year. Stripping out banks and energy firms shows that the rest eked out earnings-per-share growth of 19% in the most recent quarter, compared to a year ago. "We believe that potential beats in Autos, Industrials, Healthcare, and IT may not be enough to offset the misses in Financials, Metals, and Energy," said Amish Shah, equity strategist at Bank of America. "Besides, slowing global growth is a risk."
Since the stock market isn't representative of the Indian economy — energy makes up a significant portion of the Nifty 50 while being a relatively small portion of the GDP — any hit to oil and gas firms' earnings leaves investors with wobbling returns. GDP growth, meanwhile, might continue to stay the course.
"Indian equities are enjoying strong price momentum and earnings growth, but remain highly correlated to, and arguably dependent on, the continued performance of US equities in a late cycle environment," said Maximilian Macmillan, a senior investment director at U.K. asset manager Abrdn, told CNBC's Inside India. "Bonds offer diversification from this dominant and singular source of performance, though they are not risk immune.
"While foreign investor flows in equities are volatile, India is attracting heavier foreign debt inflows owing to the listing of Indian sovereign bonds on global bond indexes," said Shumita Deveshwar, chief India economist at TS Lombard.
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