Indian stock market may return 12-15% in 12 months; Industrial, IT, Export sectors in focus | Stock Market News

India is structurally strong and cyclically slow, which led to a slowdown in corporate earnings from 8% to 10% from 15-20%. High interest rates, India’s general elections, and global political shifts contributed to the slowdown.

The equity market trades at 19x, close to the Covid Feb 2020 lows of 18.3x. 

Clearly, India’s economy is far more substantial at a GDP of 6% plus; banks have low NPAs with strong balance sheets capable of funding private and public capex of ₹11 lakh crores over the next 12 months.

RBI is in an interest rate-cutting cycle. It will cut 50 basis points in April and June. RBI is likely to focus on growth and inflation. The good news is that inflation is falling.

The Interest rate cuts are likely to mark the bottom of the market, which is close to current levels. The high earnings expectations before the Indian elections and the pre-India 2024 budget have been cut. 

Accordingly, stocks have fallen 30-50% in the broader market in defence, railways, industrials – Earnings for the index have been cut by 10%, and indexes have fallen 10-13% from peak.

The ongoing quarter will see cautious guidance from companies in India due to the reset. However, information technology will see positive guidance due to continued pick-up in the US.

India’s earning growth is likely at 12-14% for next 12 months and acceleration for 2027. Given that markets are forward-looking, we can expect a rally to begin about a quarter from now.

We could expect a 12-15% stock market return over the next 12 months and Higher returns beyond. Therefore, Multicap would be the ideal approach as we can see sharper upgrades in industrial, IT, and export-facing sectors. 

Trump sanctions are broad-based and not specific to India. Therefore, manufacturing countries such as China commodity countries like Brazil will be impacted more than India.

India is still a domestic-facing services economy. Seventy per cent of the economy is services, and a few automobile ancillary companies, chemical companies, and green energy companies with US federal subsidies will see some earnings cut.

In summary, the market pain is primarily over; markets will be volatile and trade sideways over the next few months. As India moves into the third rate cut in May-Jun, the company’s earnings will stop falling and start rising.

The correction is essentially complete, and markets are close to the bottom. Global and Indian interest rates are on the decline, which provides the impetus for a lower cost of capital that encourages corporate capital expenditures. Capex, in return, spurs employment and a national multiplier effect. 

The US dollar is likely to remain strong, the INR is expected to fall toward 88-90 to the USD, and inflation is falling. The marketplace has primarily discounted the same.

India is a significant and broad market with over 7,000 publicly traded companies and numerous private companies going public yearly. The overall environment is influx but growing, and the cost of capital is moving down globally and in India.

Over the following week, investors will be uncertain about the nature and timing of tariffs and inflation news. However, beginning incremental allocation into Indian equity markets may be beneficial.