Foreign investor neutral-to-slight overweight on India; expect FPI inflows to sustain: Jefferies

Jefferies, which hosted  close to 150 investors at the Jefferies 2nd India Forum, said foreign investors broadly remained positive on India growth outlook and expect policy continuity in 2024. Jefferies said foreign investor positioning appeared closer to neutral-to-slight overweight on India and that the long consolidation in benchmark indices, alongside earnings growth, have made valuations attractive.

Data showed foreign portfolio investors (FPIs) infused Rs 43,838 crore into domestic equities in May. This was against Rs 11,631 crore in flows in April and Rs 7,936 crore inflows in March. In fact, May inflows were the highest since August 2022's Rs 51,204 crore inflows.

Corporate India sentiment has been much more positive than investors expectations, Jefferies, which also hosted 70-plus companies, said.  "Recent upturn in FPI flows may thus sustain", it said in a May 31 note.

Cyclicals are seeing strong demand conditions across industrial, property, autos, chemical sectors, Jefferies said. It said financials are seeing moderation in top line but asset quality trends are strong, adding that IT and high-frequency discretionary are weak. The foreign brokerage has remained overweight on cyclicals.

"Our meetings with the Finance Minister/senior bureaucrats, RBI, political & industry experts reiterate our thesis that India is on the cusp of a new capex cycle driven by a multi-year upturn on the property upcycle. Recent bout of populism at states is unlikely to take the central government away from its focus on capex

as there's confidence around political continuity after 2024 elections. Separately, optimism around electronics manufacturing is visible in Delhi," Jefferies said.

Among cyclicals, Jefferies noted that companies across property, capital goods, cement and industrials were broadly positive. Property companies have seen strong start to FY24 residential pre-sales, and pricing strength is visible, it said.

"Contracting capacity is in short supply. Strong order-book trends with cap-goods cos are continuing; while

industrials are seeing some margin tailwinds on declining energy and commodity prices. Cement cos are expecting healthy volume growth; even as pricing is flattish (though lower costs a tailwind). Chemicals are expecting to >2x revenues over the next 3/4 years as capacity in China recedes," Jefferies said.

Jefferies said automakers (PV, 2Ws) expressed reasonably good demand with good orderbooks (PVs) and margin trends stable to positive. Banks that Jefferies met see a moderation in credit growth & net interest margin (NIM), but are confident of quality and return on equity.

Jefferies said large cap IT corporates reiterated their guidance from their earnings that 1HFY24 continues to look weak. Potential demand recovery appears sometime away, it said.

"Demand for luxury products such as Jewellery looks strong while QSR and food delivery are seeing subdued demand. On staples, corporates believe that weak demand is behind us and have started seeing signs of a selective pick up in rural consumption; with margins seeing uptick," Jefferies said.

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