India at lifetime high while other emerging markets are 30% away from their peaks

Indian equities are trading at their lifetime highs while the emerging markets are 30 per cent away from their peaks.

This is largely a result of strong FPI equity flows (highest among select EMs for four months in a row), pick-up in MF equity flow, benign crude oil prices, sharp progress in south-west monsoon, continued demand traction (with signs of rural and capex cycle recovery), and likely mid-teen corporate earnings growth (with minimal earnings downgrade), Antique Stock Broking said in a note.

Indian equities are trading at 20x 1-year forward P/E multiple (as against a long-term average of 18.4x) helped by strong FPI equity flows (highest equity inflow of USD 3.5 billion among emerging markets in June—the fourth month in a row), pick-up in mutual fund equity flow (Rs 98 billion till 26th June), benign crude oil prices, sharp pick-up in monsoon, resilient domestic macro (as evident from various macro indicators like GDP growth, IIP, GST collection, PMI, e-way bill, electricity demand, petroleum consumption, etc.), and likely mid-teen corporate earnings growth (with minimal earnings downgrade), the report said.

India is at a lifetime high, unlike other emerging markets with almost all sectors indices reaching their lifetime high, the report said.

India continues to trade at above mean valuations and at premium levels relative to global equities. Mid-caps are now trading at average premium levels helped by pick-up in FPI equity inflow into India especially in financial services, industrials, and auto sectors.

Healthy demand accompanied by margin uptick to drive 1QFY24 earnings, the report said. Various high-frequency indicators along with various RBI surveys point to healthy demand traction in 1Q (RBI estimates a 1QFY24 real GDP growth of 8 per cent YoY), which along with lower commodity prices (LME metal index down 17 per cent YoY and Brent crude oil down by 30 per cent YoY), is likely to result in mid-teen corporate earnings.

Most of the sectors are likely to report in-line earnings, with a positive surprise likely in store for oil & gas (due to Russian blending and GRM) and cement (driven by strong volume growth). However, earnings downgrade is likely in consumer durable (due to weakness in volume given unseasonal rains) and agrochemical (due to high channel inventory, pricing pressure, and inventory losses).

Early signs of rural recovery are underway, the report said. Our on-ground interactions suggest that rural markets are witnessing recovery with select FMCG companies witnessing rural growth ahead of the urban markets. Our economic indicators (like the decline in rural inflation, healthy rural wages, robust rabi season, strong agriculture GDP growth, expected normal monsoon, and a healthy uptick in two-wheeler registration) also suggest signs of a pick-up in rural consumption, the report said.

Our analysis of past El Nino years suggests that south-west monsoon may be normal (as seen in 1997) when accompanied by positive Indian Ocean Dipole and negative Eurasian snow cover. South-west monsoon is showing remarkable progress (just 8 per cent below average as compared to 23 per cent below average last week), leading to a pick-up in Kharif sowing.