Indian Equities - Prospects Improving?
The Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) won the Bihar State elections by a big margin last week. Bihar is the third most populous state in India. The NDA have now won five out of six state elections since the June 2024 national elections. The pro-business Modi administration has re-established its dominance which, at the margin, is an equity market positive.
Earnings growth has slowed considerably since the 41% surge in earnings in the March 2022 Financial Year (FY). Earnings growth has averaged just 13% for the last few years and may struggle to post a double-digit gain in FY26. The outlook further out looks a little more promising.
From a regional perspective the Korean ‘Value Up’ rally, coupled with China’s market revival and broad strength across the IT hardware sector (Taiwan and Korea) has seen India’s relative performance falter. Since September 2024 India has underperformed the Asia ex Japan regional index by the best part of 30%.
That is not to say that the market is now cheap on traditional measures such as PER, PBV or dividend yield but India has always been a highly rated market.
For good reason. Despite recent trade issues with the volatile Trump administration, the economy of the world’s largest democracy continues to be driven by large infrastructure spending and rising consumption trends. Unlike 2013, the current account deficit is small and relatively stable and long-term growth prospects solid.
While there are plenty of AI and green energy incentives currently underway across the country, India may prove to be one of the better ‘ports in a storm’ should the AI frensy moderate.
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