In a recent update, Nomura, a prominent brokerage firm, has shifted its investment stance on India from ‘Neutral’ to ‘Overweight.’ This strategic move is driven by India’s strong potential as a beneficiary of the ‘China+1’ trend, encouraging businesses to diversify away from China. Nomura highlights India’s large and liquid equity market as a key factor in this decision.
While expressing caution regarding Asian stocks due to the US Federal Reserve’s prolonged stance on interest rates and rising commodity prices causing inflation in the United States, Nomura underscores the risk of a deeper economic slowdown in 2024 if the Fed maintains its course. As a result, the brokerage firm has become more selective in its recommendations.
Nomura suggests a portfolio that favors a blend of value, strong balance sheets, and companies poised for substantial earnings growth while avoiding high-valuation and unprofitable segments of the market. Despite recent volatility in the Indian market due to global factors such as weak cues and rising oil prices, Nomura views this as an opportunity to increase exposure.
The report acknowledges that valuations may remain elevated as long as government policies persist and investor optimism remains intact. India’s structural attractiveness, characterized by high earnings growth, resilient earnings revisions, and robust domestic flows, continues to shine in the global market.
Nomura emphasizes India’s role as a counter-weight to North Asia during Western economic slowdowns and Chinese recovery challenges. The Indian market hosts high-quality and growth-oriented stocks, albeit at higher valuations, and is less susceptible to global trade slowdowns.
Despite these positive insights, Nomura also highlights potential risks to its investment thesis. These include intense politics in the lead-up to the May 2024 elections, shifts in China’s economic focus, and persistently high oil prices. Nevertheless, the brokerage firm points to rising foreign direct investment (FDI) in local manufacturing and low equity share in household assets as encouraging factors.
Nomura’s recommendations for a well-rounded portfolio include stocks with favorable relative valuations and exposure to domestic growth sectors such as banks and infrastructure. Some of their top stock picks include ICICI Bank, Axis Bank, L&T, Reliance, ITC, MedPlus Health Services, as well as companies poised to benefit from structural trends like the growing adoption of electric vehicles, such as Mahindra & Mahindra and Uno Minda.
In summary, Nomura’s upgraded outlook on India’s investment landscape reflects optimism in the country’s potential as a key player in the evolving global economic landscape, while also acknowledging potential risks that investors should monitor.