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According to Bulls & Bear report for December 2024 of Motilal Oswal Financial Services Ltd. (MOFSL), Indian stock markets corrected ~8% from the top over Sep-Nov’24, due to a variety of factors, viz. earnings moderation and elevated valuations in midcaps and smallcaps, along with global factors, such as a fragile geopolitical backdrop in the Middle East and a strengthening dollar index following the Trump victory.

FIIs sold equities worth ~USD13b in Oct-Nov’24. The correction has cooled off the valuations in largecaps, even as mid/ smallcaps trade at expensive multiples. Nifty-50 is now trading at 19.5x FY26E EPS, while mid-cap/small-cap indices are trading at 30x/24x one-year forward P/E multiples, off from the Sep’24 highs but still rich vs. their own history as well as relative to Nifty-50. MOFSL believe its model portfolio reflects conviction in domestic structural as well as cyclical themes. MOFSL says it is overweight on IT, Healthcare, BFSI, Consumer Discretionary, Industrials, and Real Estate, while it is underweight on Metals, Energy, and Automobiles.

Nifty-50 ends lower for the second consecutive month: 

The Nifty further corrects marginally by 0.3% MoM in Nov’24 after a 6.2% decline in Oct’24. The Nifty-50 closed in the red for the second consecutive month. Notably, the benchmark index was extremely volatile and hovered around 1,274 points before closing 74 points lower. The Nifty-50 is up 11% in CY24YTD. During the last 12 months, midcaps and smallcaps have gained 31% and 32%, respectively, and outperformed largecaps, which have risen 20%. During the last five years, midcaps have outperformed largecaps by 127%, while smallcaps have outperformed largecaps by 121%.

Second successive month of FII outflows; DII inflows remain strong:

In Nov’24, DIIs recorded inflows of USD5.3b. In contrast, FIIs recorded the second consecutive month of outflows at USD2.2b. FII outflows into Indian equities stand at USD2.1b in CY24YTD vs. inflows of USD21.4b in CY23. DII inflows into equities in CY24YTD continue to be strong at USD58.9b vs. USD22.3b in CY23.

Breadth adverse in Nov’24:

Among sectors, Technology (+7%), Capital Goods (+2%), Real Estate (+2%), Telecom (+2%), PSU Banks (+1%), and Financials (+1%) were the gainers. Conversely, Oil & Gas (-5%), Utilities (-4%), Metals (-3%), Healthcare (-2%), and Consumer (-2%) were the top laggards MoM. Among stocks, M&M (+9%), Bharat Electronics (+8%), TCS (+8%), Tech Mahindra (+6%), and Infosys (+6%) were the top performers, while Adani Enterprises (-16%), Asian Paints (-16%), Britannia (-14%), Adani Ports (-14%), and SBI Life (-11%) were the key laggards.

India among the laggards in Nov’24:

Among the key global markets, the US (+6%), the UK (+2%), Russia (+2%), and China (+1%) ended higher in local currency terms. However, Indonesia (-6%), Korea (-4%), MSCI EM (-4%), Brazil (-3%), Taiwan (-2%), Japan (-2%), and India (-0%) ended lower MoM in Nov’24. Over the last 12 months, the MSCI India Index (+25%) has outperformed the MSCI EM Index (+9%). Over the last 10 years, the MSCI India Index has notably outperformed the MSCI EM index by a robust 165%.

Corporate earnings moderate YoY following a healthy 21% CAGR over FY20-24:

After recording a healthy 21% CAGR over FY20-24, corporate earnings have moderated in 1HFY25. Earnings for the MOFSL Universe (-1% YoY) and Nifty-50 (+4% YoY) in 2QFY25 were the lowest in 8 and 17 quarters, respectively. However, excluding global commodities, earnings were strong at 12%/11% YoY for MOFSL/Nifty-50 Universe. Since Aug’24, we have cut our FY25E for Nifty EPS by 5%, and we now expect a modest 5% growth for Nifty earnings in FY25, the first year of single-digit growth in five years. However, compared to the muted 1H, we expect corporate earnings to recover in 2HFY25 (9% YoY growth for MOFSL Universe in 2HFY25 vs. flat YoY performance in 1H), aided by a rise in rural spending, a buoyant wedding season in 2HFY25 (30% higher weddings YoY), and a pick-up in government spending.

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