JM Financial’s Deepak Gupta: India’s Underperformance Paves the Way for Potential Recovery
Recent insights into Indian equities suggest a potential turning point for the market, driven by improved valuations and currency stability. Deepak Gupta, Senior Fund Manager and Head of Research at JM Financial Asset Management, emphasized that Indian indices have exhibited low-to-mid single-digit CAGR returns over the past two years, significantly trailing behind developed markets that have achieved mid-teen growth. This valuation gap is becoming increasingly attractive for investors, especially in light of the Reserve Bank of India’s measures aimed at stabilizing currency volatility, such as the newly introduced FCNR deposit scheme. Gupta anticipates that these efforts could alleviate the consistent foreign institutional investor (FII) selling pressure that has burdened Indian markets, drawing parallels to similar successful interventions in 2013.
In terms of sector performance, Gupta expresses particular optimism towards manufacturing-linked sectors, including capital goods, infrastructure, and utilities. This positivity is underpinned by the government’s push for self-reliance amid global geopolitical challenges. The healthcare sector is also seen as having strong prospects, aided by favorable currency dynamics and steady demand for pharmaceuticals and premium healthcare services. Conversely, Gupta advises caution regarding the oil and gas sector due to unpredictable crude price fluctuations stemming from the ongoing West Asia crisis. Additionally, the IT services sector appears to face headwinds, where despite low valuations, concerns remain about its growth trajectory in a rapidly evolving landscape influenced by artificial intelligence.
Recognizing lending financials as currently being in a “sweet spot,” Gupta notes stable asset quality and favorable macroeconomic conditions, particularly in the microfinance segment. The anticipated inflow of FCNR deposits is expected to enhance net interest margins, despite rising competitive pressures, especially from digitally upgraded public sector banks. Gupta remains optimistic that well-positioned lenders will regain investor favor as they grow faster than nominal GDP. Non-lending financial sectors, such as asset management and broking, continue to thrive amid an expanding capital markets environment.
Exploring specific trends, Gupta acknowledges the increasing relevance of electric vehicles (EVs) but cautions against overlooking traditional internal combustion engine (ICE) automakers due to underdeveloped EV infrastructure in India. In consumer markets, he points to robust demand in the premium segment, bolstered by rising consumer aspirations. The utilities sector also appears promising, particularly thermal utilities, which Gupta believes will remain essential amid increasing energy consumption. While he anticipates reasonable performance from renewable energy over the next few years, he highlights the necessity for advancements in battery energy storage technology as critical for long-term growth in this sector.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)