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The Indian market continues to be a mix of optimism and euphoria with (1) parts of the market rightfully reflecting the strength of the Indian economy and its long-term kgrowth prospects and (2) other parts reflecting extreme euphoria linked to baseless narratives with absolutely no linkage to fundamentals. 4QFY24 results did little to change (1) trends in sectors or (2) views on the market. 

Getting the election issue out of the way first

Our market view and recommended portfolio construction is based on (1) the BJP/NDA forming the next government with a comfortable majority and (2) no major change in the government’s economic policies with continued thrust on economic development, growth and liberalization. Election results are due on June 4 and exit polls will be available from the evening of June 1.

Valuations continue to be full-to-rich-to-euphoric

The Indian market’s valuations based on the usual indices do not look extreme versus history or bond yields but have little relevance. The market continues to be a three-part market with (1) sectors such as financials trading at reasonable valuations, (2) sectors such as consumer, IT services and pharmaceuticals trading at full-to-rich valuations and (3) sectors such as automobiles, capital goods and PSUs trading at euphoric valuations.

4QFY24 results showed some reversal of trends of previous quarters

Consumption demand continued to be weak although a few companies did highlight incipient signs of recovery in demand from low-income and rural households. Investment demand continued to be robust although order booking was surprisingly weak for several companies. Outsourcing was a mixed bag with IT services showing further weakness in demand given continued delay in discretionary spending by customers and pharmaceuticals showing continued strong demand from overseas markets.

4QFY24 results did not disappoint or enthuse

4QFY24 net profits of the Nifty-50 Index grew 8.6%, 4.3% above our estimates while EBITDA of the Nifty-50 Index grew 5.9%, 1.5% below our estimates. However, the modest beat at the net income level was led by (1) stronger-than-expected performance of banks and (2) accounting change in the case of COAL, which offset (3) weaker-than-expected performance in most other sectors. 4QFY24 net profits of KIE-Universe increased 8.4%, 2% above expectations. FY2024 net profits of the Nifty-50 Index grew 20%, but only 13% adjusted for COAL, BPCL and HPCL (part of ONGC). The former benefited from accounting change while the latter two benefited from high marketing margins versus large negative margins in FY2023 on retail automobile fuels.

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