India Strategy : Where Money Flows - Mar 2024 by Yes Securities
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The Indian markets present intriguing dynamics, particularly evident in the growing disparity between the valuations of Nifty Bank and Nifty 100. Despite the downward trend in valuation multiples of Nifty Bank over the preceding 36 months, the 1-year forward price-to-earnings (PE) ratio of Nifty 100 has remained stable. This divergence has resulted in an expanding PE differential between Nifty 100 and Nifty Bank, approaching the 2nd standard deviation. We expect this gap to narrow in the future, basis our rationale stated below:
* Earnings Upgrade has failed to underpin PE multiples of Banks: Despite upgrades in earnings for both FY24 & FY25, they have not been successful in shoring up the PE multiples of banks
* Comparison with Global Peers: Indian banks have lagged their global counterparts in valuation parameters over the last three years. Currently, they are close to -2 standard deviations both in terms of P/E (Price-to-Earnings) and P/B (Price-to-Book) ratios, despite the ongoing gap in Return on Equity (ROE).
* FPIs' Investment Trends: Foreign Portfolio Investors (FPIs) have reduced their holdings in the Financial Services sector over the past year, with their overall ownership in Indian equities reaching a decade low. However, there is an indication of increasing FPI stakes in Financial Services, driven by their optimism on Indian equities and the higher weightage of Financial Services in the Nifty 100 Index
Through 43 interesting exhibits, we focus on prevalent domestic and global liquidity flows to assess the evolving situation in financial markets. Shared below is our assessment.
India Equity
YTD 2024 FPI flows turn positive, play K shaped thesis: Sell FMCG, Buy Auto
MF equity AUM continues to grow, breaches INR 23 tn mark
Indian Equities stand Tall amid Major Markets (Exhibit 23)
India Debt
FIIs tilt towards Indian Debt markets, front-running ahead of the inclusion of India’s sovereign bonds in Global Indices
India’s Credit Spreads tighten despite a deficit in Banking Liquidity, suggesting lower Corporate Borrowing
Global Liquidity
Capital flows in EMs is above the historical average
US Magnificent 7 Stocks quite a Behemoth
Despite the stellar outperformance of Magnificent 7 Stocks, the US is the least concentrated market in terms of Market Capitalisation
Commodities
Commodities have decoupled from Equities FX
Indian Rupee is poised for a structural uptrend, as evidenced by its resilience
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