Direct Equities: Balancing growth and risk

The medium-to-long term investment case for Indian equities remains intact. However, geopolitical exigencies leading to an oil shock/supply chain disruption and a global ‘risk-off’ sentiment seems an increasingly potent near-term risk to the scorching flows-led rally in Indian equities which has propelled benchmark indices to trade at rich valuations (1yr-fwd P/E of Nifty-50 / Nifty-Midcap100 / Nifty-Smallcap100 / BSE-500 are at a 14% / 49% / 45%/ 20% premium to their respective 7-yr avg). US Fed kickstarting its interest rates easing cycle with a larger-than-expected cut together with China unveiling new measures to stimulate its economy led to a strong rally in global equities. 

Highlights

• As monthly net FII inflows clocked a 9mth high at US$6.9bn, net DII inflows into equities & retail inflows into equities (Direct/MFs) remained robust, the broad market gained 2% in Sep-24.
• Sectors: (1) BFSI stocks still offer favorable risk-reward balance. (2) Selective stocks in logistics, auto & healthcare space may look reasonable. (3) We are on the sidelines in the case of Capital Goods, IT & Consumption (rich valuations across most stocks).
• As per street expectations, realty, durables, cap goods & healthcare to witness robust earnings growth in FY25.
• Consumption, MNC & Commodities themes were in favor in Sep-24. CPSE and PSE remain outperformers on a CYTD basis.