Nomura Research analysts have pointed out that India’s stock market faces near-term risks due to slower economic growth and weaker earnings. However, they still hold a “structurally positive” outlook and maintain an ‘overweight’ stance on the country. While India’s GDP growth has slowed to its weakest in two years, primarily due to a slowdown in the industrial sector, there are expectations for a recovery in the second half of the fiscal year.
Despite these challenges, India remains an attractive investment due to its long-term growth potential, especially with the ‘China+1’ strategy, which positions India as a key alternative to China. The domestic stock market is also benefiting from continued equity inflows, and India is less exposed to risks like global trade slowdowns or protectionist measures. Its large, liquid market and ability to counterbalance North Asia in a tariff scenario further enhance its appeal.
Nomura’s approach focuses on stock picking, with an emphasis on companies with strong valuations and domestic growth potential. Their top picks include Reliance Industries, Infosys, ICICI Bank, Hindustan Unilever, Lupin, Larsen & Toubro, and Bharti Airtel. They also favor Mahindra & Mahindra and Shriram Finance for their structural growth prospects.
Looking ahead to 2025, Nomura sees key investment themes shaped by US policy, China’s economic outlook, the AI sector, inflation trends, and the Federal Reserve’s actions. They prefer domestic demand-driven economies, believing they will be better insulated from global uncertainties. Regionally, Nomura has upgraded Taiwan to ‘overweight’ and remains positive on India and Malaysia, while downgrading Korea and Indonesia to ‘neutral.’ They also have ‘underweight’ ratings for the Philippines, Thailand, and MSCI Hong Kong.
Nifty Rises, Rupee Weakens Amid Rate Hopes
The Nifty has risen by 2%, with the small-cap index nearing its peak, driven by optimism over potential rate cuts. Quant Mutual Fund is approaching full deployment, reflecting positive sentiment. However, dollar-rupee calls have surged to $1.9 billion, indicating growing concerns about the rupee. The rupee recently hit 84.76, and MUFG expects further weakness, forecasting a dip to 86 by Q4 2025. Meanwhile, the RBI is conducting USD/INR buy-sell swaps, and the 1-year rupee forward premium has dropped to a four-month low of 1.97%.
Bank of America projects the Nifty 50 to hit 26,500 by 2025, offering a modest upside of less than 9%. Despite a recent market correction, high valuations, FII outflows, and geopolitical risks could restrict growth unless there are significant reforms.
