BENGALURU (Reuters) – The Indian stock market may outperform its Asian and emerging market peers in the long term as lofty valuations ease and investors look to bet on the economy’s growth prospects, brokerage group Jefferies said in a note.
The benchmark Nifty 50 Index’s price-to-earnings premium to China’s Hang Seng Index declined to 115% from 208% in end October, and is in line with the 10-year average of 118%, Chris Wood, global head of equity strategy, Jefferies, wrote in his “Greed & Fear” report.
India’s long-term prospects have led the global brokerage to invest 39% of its Asia ex-Japan long-only portfolio in the south Asian country compared with 25% in China.
While foreign investors have sold $2.8 billion on a net basis in Indian markets so far this year, domestic equity mutual fund inflows have remained positive, Wood said.
Domestic equity mutual fund inflows in the first two months of 2023 amounted to 282.33 billion rupees ($3.43 billion), according to official data from the Association of Mutual Funds in India.
The usual challenge of relatively high valuations remain, Wood said, adding that the brokerage will remain slightly “overweight” on India in the Asia Pacific ex-Japan relative-return portfolio.
“The domestic demand story certainly remains intact to justify the continuing belief in the equity market. Loan growth has slowed somewhat but still remains solid … The recovery in the residential property market also continues,” Wood wrote.
Asian banking systems remain remarkably free from stresses, Wood said, citing a slide in the ratio of non-performing loans in Indian banks to an eight-year low.
($1 = 82.2290 Indian rupees)