Indian market in bullish phase, stay constructive: HSBC

HSBC said it remain constructive on the domestic market, which it says is going through a bullish phase. The foreign brokerage believes earnings growth outlook will likely remain the key catalysts for the rest of 2023, given valuation levels  in India are slightly above the 5-year mean, market breadth stays at 85 per cent and concerns are emerging over inflation. HSBC said the recent June quarter results for India still point to a strong earnings growth outlook for FY24 and that the country should stand out amid the general global slowdown narrative.

India has been the best performing market since March 2023, with FTSE India index jumping 16.7 per cent in dollar terms, led by $21 billion in foreign flows, supported by strong earnings outlook and relatively stable macro conditions.

"After this rally, valuation has risen, inflation has shown a somewhat worrisome uptick (July inflation came in at 7.4 per cent), and crude has inched up. Amid escalating concerns on global growth, India still stands out, but earnings resilience is key to sustain positive momentum," HSBC said.

HSBC said the shape of the earnings growth trajectory this year is more critical than an average year and India's 'goldilocks' scenario rests on it.

HSBC said pharma sector witnessed significant earnings upgrades with an improved outlook. Autos, cable & wire companies, energy, banks and NBFC FY24 earnings saw revisions in earnings. Consumer durables, retail, utilities, agri chemical and the IT sector saw downward earnings revisions post the quarterly results.

"Margin tailwinds are expected to continue and while rural demand on average was still lacklustre, companies expect demand to pick up gradually in the second half. However, rising inflation and its impact on demand, and prospects of bank NIM compression (even though banks delivered strong 1Q earnings) are key risks through FY24-end. Industrials (excluding logistics) had a good Q1, with strong order inflows and outlook aided by continued governmental capex even as exports look vulnerable," it said.

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