BNP Paribas, one of France’s largest banks and global equity research house, says that India’s premium valuation to the global peers and other Asian markets is unsustainable. Even as markets in the US, Europe and other Asian countries are down between 7 per cent and 23 per cent year to date, India’s Sensex and Nifty widely outperformed their peers and are down only marginally so far in 2022. India is commanding up to 65 per cent premium to some of its Asian peers, a report by BNP said.

Buy on 7 stocks

On the lofty valuations of Indian markets, Vora said, “Historically, at this level, market returns in the next one year have remained muted and thus warrants caution.” Still BNP has recommended a buy on seven stocks including Axis Bank, HDFC Bank, Sun Pharmaceuticals, Bharti Airtel, Infosys, ITC and Whirlpool. The one thing positive for India is that it has far lower inflation to western economies, BNP said. They are also anticipating another tariff hike in the telecom sector. 

After being sellers in India’s market for nearly $33 billion between October 2021 and July 2022, foreign portfolio investors turned net buyers. They pumped in nearly $7 billion into the markets, but that, analysts say, could be a temporary phase. Year to date, the FPI outflows remain elevated ($21.5 billion), with FII holdings in Indian equities at multi-year lows (17.5 per cent).

“Amid slowing global demand, lofty market valuations, a slowdown in retail flows and lack of positive catalyst for our earnings estimates, we remain cautious on the overall market returns in the near term,” he added, while presenting outlook on Indian markets.

Among the sectors, BNP Paribas is Overweight on banking, IT, pharma, telecom and Underweight on auto, consumer staples, durables and global cyclicals.

The Indian consumer durables industry was valued at $2.3 trillion, as of FY21-end. The product offerings range from cables and wires, switches and switch-gears, fans, lighting, to white goods such as ACs, washing machines and refrigerators. “The low penetration levels of various categories imply a long runway to growth over the next decade or so, in our view,” it said.

Earnings growth

Nifty 50 FY23/FY24E Bloomberg consensus EPS were lowered by 4 per cent/2 per cent through the earnings season and have each dropped 4 per cent from its peak. This shows that Nifty earnings have ended lower than the consensus forecast for every year in the last decade, the report said and added: For FY24, consensus now expects overall earnings growth of 15.6 per cent year on year, with the bulk of the contribution coming from financials (5.4 per cent), consumer discretionary (2.7 per cent) and IT (2.1 per cent.

Commenting on the stupendous rally in the share price of the Adani group, Kunal Vora, Head of research - Strategy, BNP Paribas, said that there is a wide gap between Adani group shares and some of its peers. Vora agreed that almost all the research houses had missed the rally.

The seven listed companies of Adani group have added 79 per cent to the market capitalisation of the BSE-listed companies. The total market-cap of the BSE-listed companies has risen by ₹12.74-lakh crore in 2022, whereas the seven listed Adani companies have reportedly gained ₹10.05-lakh crore in market cap during this period.

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