Macquarie Capital, believes that Indian markets might drop by 5-7% soon. This decline is driven by foreign institutional investors (FIIs) selling off their shares to focus on China. Concerns like geopolitical tensions and high valuations of Indian stocks are causing this shift, while China is expected to benefit from speculation about an economic stimulus. However, Bhatia thinks this won’t affect the positive outlook for India overall.
The Indian market is the world’s costliest, with a price-to-earnings (P/E) ratio of 26.85.
Macquarie believes that a 20% market correction could be good for Indian stocks, but a 5-7% drop seems more likely in the short term because of the attention FIIs are giving to China. He feels that India needs some time for the market to adjust to more reasonable levels, and if that happens quickly, it would be a good thing.
With rising tensions in the Middle East and a rally in Chinese stocks, FIIs have sold more shares this month than in the last four and a half years. China will continue to attract investment in the coming months, as it is likely to take steps to improve its economy and markets. He insists that this focus on China does not change the positive view on India.
Macquarie Sandeep Bhatia points out that Indian stocks are currently expensive, and he welcomes a correction for the market’s long-term health. He believes that domestic investment will remain strong, but he is concerned about whether India can keep up its GDP growth of over 7%. He views the shift in FII interest towards China as something that could help stabilize the Indian market in the future.
Macquarie expects FIIs to keep selling their shares, he admits that it’s hard to predict how the market will correct itself. He thinks a quick drop in the benchmark indices is likely, along with strong domestic investment. He believes that the correction won’t be slow because companies are still expected to report good earnings.
If there is a broad market correction, Bhatia plans to invest in private sector banks because he thinks their valuations are reasonable and they could do well if the U.S. continues to cut interest rates next year. Macquarie sees opportunities in IT stocks if the U.S. economy grows and IT spending stays steady, but warns that small and mid-cap sectors will likely face more difficulties.
In October, foreign investors sold shares worth ₹62,126 crore in the Indian market, while domestic investors bought ₹60,070 crore.
Recently, Bernstein Research has changed its rating on the Indian stock market from ‘neutral’ to ‘underweight,’ suggesting that they think it is “quite vulnerable” in the near future. This downgrade is primarily due to worries about record-high valuations compared to China and other emerging markets, increased risks of overcrowding in large-cap stocks, and a growing number of downgrades within the market.
Inputs from NDTV Profit Interview
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