EQUITY VIEW

Feb 2025
Global economy

Inflation poses a common challenge to the global economy

1. Bringing inflation down without causing too much collateral damage to economy and labor markets.

2. Although inflation has moved down from its peak, its still way above the target

Monetary
Monetarypolicy
policytototackle
tackleinflation
inflation

The direction of monetary policy in advanced economies is increasingly unambiguous now:

1. Bringing down inflation within target range
2. Avoiding a wage-price spiral
3. Bringing consistency in inflation expectations

SOURCE: JP Morgan, India Monthly Wrap

Correlation with global economy

Sharp Slowdown in Earnings: Impact likely, especially in sectors

Earnings: Impact on global sectors, cushion in
US/UK/EU with global linkages offset slightly by lower
input prices
input costs
Valuation: Premium can reduce meaningfully
Valuation: Premium can sustain but risk-off will
as flows to China increase
reduce absolute valuations
Gradual Slowdown in

Earnings: Limited impact, some impact on

Earnings: Limited impact on India’s GDP/Profit
US/UK/EU

commodity prices
Growth
Valuation: Premium will shrink although
Valuation: Growth Premium will sustain
absolute valuations might sustain

Slow Recovery in China Sharp Recovery in China

Sweet Spot
Based on Internal Views and subject to change
Drivers for India
The pickup in the investment cycle

The pickup in the credit cycle

The longer-term drivers

The pickup in real estate
of earnings in India

Tailwinds for Indian manufacturing

sector and the industrial sector

Commodity prices coming down

in case of global soft landing
Based on Internal Views and subject to change
 Portfolio strategy

Actively seeking GARP opportunities

Active and cautious exposure to Mid &
(Value with Triggers, Earning Upgrade
Small Caps to capitalise on investment
Cycle) on bottom-up basis; valuation
cycle led economic growth. Risk-reward
discipline key in high-interest rate
more in favour of large caps.
regime

Balanced portfolio strategy to capture the economic cycle

Based on Internal Views and subject to change

Portfolio strategy

❑ Balanced portfolio strategy to capitalise on the various pockets of strong earnings recovery and outlook
❑ Reduced exposure to Investment Cycle, Power, Capital goods and Real estate
▪ Recovery in investment cycle led by healthy cash flows in the corporate sector and government’s counter-
cyclical fiscal policy has led to outperformance in industrial/capital goods sector. High valuations and rising
execution risks however has led to reduce exposure and stock-specific approach in the last few months.
▪ Recovery in power demand, capex in generation (renewable + thermal) and transmission implies positive
for power sector. Incremental approach is bottom-up as optimistic assumptions have got progressively
factored in the valuations.
▪ Large private sector banks could lead the next re-rating as the deposit pressure abates, liquidity conditions
ease and asset quality impact from unsecured loans/MFI is relatively low. Valuations are undemanding and
factor in margin pressure from rate cuts, leaving room for positive earning surprises.
▪ With an increasing number of companies seeking digital solutions, IT spends have gone up structurally.
Prospects of tax cuts in US and higher IT spending leads us to reduce the sector underweight on IT in
portfolios.
 Resilient domestic macros

FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 Latest*

GDP Growth (%) 6.6 7.2 7.9 7.9 7.3 6.1 4.2 -7.4 4.5 7.2 8.2 6.4 E

CPI Inflation (%) 9.5 5.9 4.9 3.8 3.6 3.4 5.8 5.5 7 5.7 4.8 4.31

Current Account Deficit (% of GDP) -1.7 -1.3 -1.1 -0.6 -1.8 -2.1 -0.9 0.9 -1.2 -2.7 -0.6 -1.1 E

Fiscal Deficit (% of GDP) -4.5 -4.1 -3.9 -3.5 -3.5 -3.4 -4.6 -9.3 -6.7 -6.4 -5.6 - 4.8 E

Crude Oil (USD/Barrel) 107 53 39 60 58 65 23 59 111 80 87 77

Currency (USD/INR) 60 63 66 65 65 70 75 73 76 82 83 87

Forex Reserves (USD bn) 304 342 356 370 424 413 490 579 606 579 646 631

GST collections (lakh Cr.) 10.2 11.4 14.8 18.1 20.2 16.4

Source : Bloomberg
*Crude oil, Currency, Forex Reserves and GST collections as on 31st Jan 2025 | GDP growth, CPI Inflation, Current account deficit and fiscal deficit – Latest available.
Current valuations view
▪ Chemicals
▪ Private Banks ▪ Cement
▪ Insurance ▪ Auto
▪ Metals & Power

Reasonable High Unreasonable

Defensives
Valuation Valuation Valuation

▪ FMCG
▪ Pharma & Healthcare ▪ Industrials
▪ Telecom

Based on Internal Views and subject to change

Profitability trends improving marginally

Positive India’s outperformance has reduced due to earning downgrades in

FY25 and China stimulus. Corporate earnings downgrade risk has
BFSI, increased.
Pharma/Healthcare
1. Banks upgrade cycle likely in FY26. Pharma/Healthcare upgrade
cycle still underway,

IT 2. Sectors with topline risk (e.g. IT, FMCG) have stabilized; margins
to be supported by lower input costs or easing attrition & wage
Fundamentals

Capital goods,
pressure.
Manufacturing
Neutral
3. Capital goods/Manufacturing led the positive earning upgrade
cycle last 12 months. Execution and margin risks will weigh on
Rural Consumption valuations in CY25. Sentiments weakened as the GOI focus
shifted from capex to a consumption driven approach.
Urban consumption, 4. Slowing urban consumption could get lifted post tax cuts in the
Budget. In contrast, rural consumption is picking up from a low
base, albeit gradually.
Commodities
The biggest risk to the market is global trade policies and
Negative commodity prices incl. crude.

Based on Internal Views and subject to change

 Market performance

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Broader market update

Sensex & Nifty Performance

❑ NIFTY 50 ended the month at 23,508.4 (-0.58%).
27000 90000
25500 85000
❑ The index continue to fall amid high FII outflows
24000 80000 starting from the fag end of Sep 2024 followed by

BSE Sensex
Nifty 50

22500 75000 INR depreciation.

21000 70000
19500 65000 ❑ Only 32 out of 50 constituents closed higher MoM
18000 60000 and 28 have outperformed the benchmark.
16500 55000
Dec'23

Dec'24
Jul'23

Apr'24

Jul'24
May'23

Sep'23

May'24

Sep'24
Jun'23

Aug'23

Oct'23

Jun'24

Aug'24

Oct'24
Mar'24

Jan'25
Nov'23

Jan'24
Feb'24

Nov'24
❑ FII sold Indian equities worth over ₹78,000 Cr. in Jan
2025. Since October 2024, when FIIs have offloaded
Nifty 50 BSE Sensex
Indian equities worth ₹1.7 lakh cr.

❑ In Jan 2025, FIIs remained net sellers across almost

Sensex Nifty 50 all sectors, except for sectors like chemicals, media,
and telecom.
FYTD 5.23% 5.29%

-0.82% -0.58% ❑ The market decline was attributed to subdued

CYTD
quarterly results and FII flows shifting towards China
1 Month -0.82% -0.58% and pro US centric sentiment.

SOURCE: Bloomberg | Past performance may or may not be sustained in future

Global market performance
32% 31% 29%

22%
17% 17%
14% ❑ The performance of global markets has been
largely driven by the themes of Artificial
9%
Intelligence and central bank policy.
1% ❑ Global investors dumped tech stocks on account
of emergence of a low-cost Chinese AI model.
-1% -1% Evaporating $593 billion of a large chipmaker's
-4%
market value, a record one-day loss for any
company on Wall Street.

In 2025, China’s equity market may continue its

Taiwan

Ibovespa
Dow Jones

Kospi

Jakarta Composite Index

HangSeng

NASDAQ

Nikkei
Strait Times

SET Composite Index

Shanghai

FTSE
❑
upward trend from 2024 as stimulus measures
take hold and filter down into economic data and
corporate earnings.

1 Year 6 Month 1 Month

SOURCE: Bloomberg | Past performance may or may not be sustained in future | Data as on 31 st Jan 2025
Sectoral performance

20 21 20
19
14 17
14
10 9 7 6 8
5 4
2 1
❑ On the sectoral front Media, Financial Services
FMCG, Energy and Commodities have
-6 underperformed the Nifty 100 index in a 1-
year period. Sectors that outperformed Nifty
100 includes Healthcare, Auto, IT, etc. in 1-
year returns
-26

Nifty Private Bank

Nifty FMCG

Nifty IT
Nifty Auto

Nifty MNC
Nifty 100

Nifty Infrastructure
Nifty Energy
Nifty Commodities

Nifty Media

Nifty Metal

Nifty Realty
Nifty Pharma

Nifty PSU Bank

Nifty Bank

Nifty India Consumption

Nifty Healthcare
Nifty Financial Services

❑ In the past month, all the sectoral indices

except Auto (+0.15%) closed in red.

1 Year 1 Month
SOURCE: Bloomberg | All indices are TR indices | | Past performance may or may not be sustained in future | Data as on 31 st Jan 2025
 Market cap performance

Market Cap Performance (%)

20
❑ Mid-cap index have outperformed the large
cap and small cap index in the last 1 year.
15
11.57
10.3
10 ❑ Mid-cap and small cap indices tumbled in the
5.87 month of Jan 2025.
5
❑ The Q3FY25 results for mid and small cap
0 companies have been disappointing as most of
companies facing top line and margin
-1.7
-5 pressures.
-6.09
-10 ❑ The underperformance may be attributed
-10.69 towards low government spending in the
-15 current FY.

-20
Nifty 100 Nifty Midcap 150 Nifty Smallcap 250
1 Year 1 Month

SOURCE: Bloomberg | Indices are TR indices | Past performance may or may not be sustained in future | Data as on 31st Jan 2025
Nifty performance & valuation trends

Nifty 50 Closing and 1YF P/E

30000 29
❑ Markets continue to fall since the end of Sep 2024, on
27 account of weak quarterly performance, higher
25000 25 valuations and consistent and significant outflows
from the FII.
23
20000
21 ❑ Volatility remained on the same levels as India VIX
19 stands at 16.25 in Jan 2025 and 14.45 in Dec 2024.
15000
17
❑ Market sentiments dampened due to poor quarterly
10000 15 results amid high valuations.
13
❑ Nifty 50 ended the month the month of Jan 2025 at
5000 11
23,508 after reaching a all time high of ~26,200 in the
Jul 2015

Jul 2016

Jul 2017

Jul 2019

Jul 2020

Jul 2022

Jul 2023

Jul 2024
Jan 2015

Jan 2016

Jan 2017

Jan 2018

Jan 2019

Jan 2020

Jan 2021

Jan 2022

Jan 2023

Jan 2024

Jan 2025
Jul 2018

Jul 2021

month of Sep 2024.

Nifty 50 (LHS) 1 YF PE (RHS)

SOURCE: Bloomberg | * Volatility Index | Past performance may or may not be sustained in future
Market cap to GDP

India's Market Cap to GDP ratio

140% 132%

120%

100% ❑ India’s FY 2025E market cap to GDP ratio reached

Average, 87%
the levels of FY 2024.
80%
❑ India’s GDP is expected to expand by 6.40% in the
60% current FY.

40%

20%

0%
FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

FY 2020

FY 2021

FY 2022

FY 2023

FY 2024

FY 2025 E
SOURCE: Bloomberg | | Past performance may or may not be sustained in future
India vs MSCI EM
Nifty 50 returns over MSCI EM*
40
29 26
30 22
20 15 13
10 4 ❑ In 2025, there is a risk of India losing share on FII flows
1
0 to EMs.
-10 -4 -3 -2 -2 ❑ This is because India’s earnings differential with EMs is
now narrowing.
2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024
❑ It is worth noting that post-covid, the GDP growth
P/E premium (%) for Nifty 50 v/s MSCI EM differential between India and EM has reduced. The
100 earnings/RoE differential has increased. This is owing to
the restructuring exercise undertaken by India Inc while
80 EM corporates have faced balance sheet issues
72
60 51

40

20

0
'14

'15

'16

'17

'18

'19

'20

'21

'22

'23

'24

'25

SOURCE: Bloomberg | Past performance may or may not be sustained in future | * In local currency
 Flows

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18
DII inflows remain strong; FII turns deep red
FII Net Equity Flows ($Bn)
6.3 7.0
5.6 5.9
4.1 4.0 3.1 3.3
1.8 1.9 1.7
0.5 1.4 1.3 ❑ In Oct 24, FIIs recorded largest ever monthly outflows
of USD 10.9 bn. FIIs recorded 2nd highest outflows in
-2.3 0.0 -1.1
Jan-24. Total FII outflows in FY 25 amounts to USD 10.6
-2.7 -3.0 -2.2 bn.
-3.7 -3.5
-4.2
-8.4
-10.9
❑ FII rotation from India to China and the US, as Indian
markets were relatively more expensive. This shift may
further impact flows into emerging markets like India.
Jul-23

Jul-24
May-24
May-23

Sep-23
Apr-23

Jun-23

Aug-23

Apr-24

Jun-24

Aug-24
Sep-24
Mar-23

Oct-23

Dec-23

Mar-24

Oct-24

Dec-24
Jan-23

Nov-23

Jan-24

Nov-24

Jan-25
Feb-23

Feb-24 In Sep-2024, China saw FII inflows of USD 96 bn.

❑ FII flows are also moving towards the US as the US

DII Net Equity Flows ($Bn) economy is expected to perform relatively better due
12.8 to potential actions by the upcoming US
10.0 administration.

6.8 6.7 DIIs flows continuous to remain strong and even

3.1 5.3 5.8 5.3
❑
4.1 3.7 1.6 3.8 4.0 covering for the high FII outflows as they continues to
3.0 3.4 3.2 3.4 2.8
2.3 2.4 1.7 be net buyers for the 18th consecutive month of
0.3 0.5
inflows in Jan’25 at USD 10 bn. Total inflows from DIIs
-0.3
in FY 25 amounts to USD 59.9 bn.
-0.4
Apr-23

Apr-24
Jul-23

May-24

Jul-24
May-23

Sep-23

Sep-24
Jun-23

Aug-23

Jun-24

Aug-24
Oct-23

Oct-24
Mar-23

Dec-23

Mar-24

Dec-24
Jan-23

Jan-24

Jan-25
Feb-23

Nov-23

Feb-24

Nov-24

SOURCE: Bloomberg | Past performance may or may not be sustained in future

 Macros

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20
GDP
Quarterly GDP growth (%)
14 13.1
12
10 8.2 8.1 8.4 7.8
8 6.2 6.1 6.7 6.8
5.4
6 4.5 4.3
3.5
4 2.5
2 ❑ The real GDP is expected to grow at 6.4% in FY25
0 supported by recovery in private consumption, service
Q1FY23
Q2FY22

Q3FY22

Q4FY22

Q2FY23

Q3FY23

Q4FY23

Q1FY24

Q2FY24

Q3FY24

Q4FY24

Q1FY25

Q2FY25

Q3FY25 E
sector, recovery in agricultural sector while industrial
growth remains a drag.

❑ As per RBI in its Dec MPC meeting the real GDP growth for
FY 26 is projected at 6.7 % with robust & healthy expected
Annual GDP Growth (YoY %) growth across all quarters-
▪ Q1FY26 at 6.7 %
12 9.7
8.3 8.2 ▪ Q2FY26 at 7.0 %
9 6.8 6.5 7 6.4 ▪ Q3FY26 at 6.5 %
6 3.9
▪ Q4FY26 at 6.5%
3
0
-3
-6
-9 -5.8
FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY25 P

Source: MOSPI, RBI, SBI | E – Estimate | P - Projected

Government finances
Nominal GDP FY 2023 FY 2024 FY 25 RE FY 26 BE
A. Revenue receipts 9.2% 9.2% 9.5% 9.6%
1. Tax receipts 8.1% 7.8% 7.9% 7.9%
2. Non-Tax revenue 1.1% 1.4% 1.6% 1.6%
B. Capital receipts 7.0% 5.8% 5.0% 4.6%
1. Recovery of loans 0.1% 0.1% 0.1% 0.1%
2. Other receipts 0.2% 0.1% 0.1% 0.1%
3. Borrowing & other liabilities 6.7% 5.6% 4.8% 4.4%
C. Total Receipts 16.3% 15.0% 14.6% 14.2%
D. Total expenditure 16.3% 15.0% 14.6% 14.2%
1. Revenue expenditure 13.4% 11.8% 11.4% 11.0%
2. Capital expenditure 2.9% 3.2% 3.1% 3.1%
E. Revenue deficit 4.1% 2.6% 1.9% 1.5%
F. Fiscal deficit 6.7% 5.6% 4.8% 4.4%
Gross market borrowing 5.5% 5.2% 4.3% 4.2%
Net market borrowing 4.3% 4.0% 3.3% 3.2%

Source: Budgeted documents | RE – Revised estimates | BE – Budgeted estimates

Inflation

20

15

❑ The CPI-based inflation for the month of Jan remained at the

10
levels of 4.31%. Corresponding inflation rate for rural and urban
is 4.64% and 3.87%, respectively.
5
❑ The rate of inflation based on WPI Food Index decreased
0
from 11.59% in Oct 2024 to 8.92% in Nov 2024.

-5 ❑ WPI rose in Jan 2025 reaching 2.31% from 2.37% levels in

Dec 2024. The month over month change in WPI index for the
-10
month of Jan 2025 stood at -0.45 % as compared to Dec 2024.

Oct-24
Jul-20

Jul-21

Jul-22

Jul-23

Jul-24
Jan-24
Oct-20

Oct-21

Oct-22

Oct-23
Jan-20

Jan-21

Jan-22

Jan-23

Jan-25
Apr-23
Apr-20

Apr-21

Apr-22

Apr-24
WPI(%) CPI (%)

Source: Bloomberg | GOI

Real rates

10

8
❑ In the Feb MPC meeting the RBI voted with a 6-0 majority
6
to cut key rates by 25 bps.
4
❑ MPC unanimously decided to maintain neutral stance
2 while remaining focused on growth-inflation dynamics.

0 ❑ The RBI maintained the real GDP growth forecast for the
current fiscal year at 6.4%
-2
❑ The primary risks includes challenges from geopolitical
-4 tensions, volatility in international commodity prices,
actions of central banks of developed economies and
-6 geoeconomic fragmentation.

Jan-25
Jan-20

Jul-20

Jan-21

Jul-21

Jan-22

Jul-22

Jan-23

Jul-23

Jan-24

Jul-24
CPI (%) Repo (%) Real rate

Source: Bloomberg
Currency
USD-INR

86.5
❑ The performance of INR is weighed down by the strong
84.5 USD.

82.5 ❑ The USD-INR exchange rate fluctuated between 85.6 and

86.7 with an average of 86.25 in Jan 2025.
Mar 24

Oct 24
Sep 24
Jan 24

Dec 24
Apr 24

Jan 25
May 24

Nov 24
Feb 24

Jun 24

Jul 24

Aug 24
❑ INR depreciated by 1.28% against USD in the month of
Jan 2025. In the CY 2024, INR depreciated by 2.92%
against USD.
Dollar Index
❑ Indian currency continuous to tumble by 1.2% or more
113 for the 2nd month in a row.
108
❑ RBI continuous to maintain its stance on currency
103 intervention that it wants to smoothen excessive volatility
rather than targeting any specific exchange rate or band.
98
❑ INR has depreciated by more than 2% since the
Jul 2023

Jul 2024
Jan 2024

Jan 2025
Oct 2023

Oct 2024
Apr 2023

Apr 2024

appointment of new RBI governor.

SOURCE: Bloomberg
FOREX reserves

India’s Foreign Exchange Reserves (USD Bn.)

750 ❑ India’s Foreign exchange reserves further dropped in
Jan due to continuous pressure from strong USD.
Standing at USD 631 bn in Jan 25 from USD 644 bn in
Dec 24.
700
❑ India’s forex reserves includes but not limited to foreign
currency assets, Gold reserves, Special Drawing Rights
(SDR) and Reserve positions in IMF.
650
❑ The central bank intervenes in the spot and forwards
markets to prevent runaway moves in the rupee and
acts as a rupee stabilizer.
600
❑ Apart from the central bank's intervention, changes in
foreign currency assets, expressed in dollar terms,
include the effects of appreciation or depreciation of
550 other currencies held in the RBI's reserves.
May'23

Sep'23

May'24

Sep'24
Mar'23

Mar'24
Jul'23

Jul'24
Jan'24

Jan'25
Nov'23

Nov'24

SOURCE: Bloomberg | RBI

Crude oil

Brent Spot (US$/barrel)

❑ Brent $ spot prices rose by 3.88% in Jan 2024.
160
❑ Global oil demand rose seasonally in 4Q24, posting robust
140 annual growth of 1.5 mb/d – the strongest level since
120 4Q23. Lower fuel prices, colder weather across the
Northern Hemisphere and abundant petrochemical
100 feedstocks all combined to boost consumption.
80
❑ In the first nine months of the current financial year,
60 India’s oil import dependency reached 88.1 per cent, up
from 87.5 per cent in the same period the previous year
40
❑ Declining oil demand from China, the world's largest crude
20
oil importer, remains a drag on global oil consumption
0 and prices. While crude oil prices may benefit from the
fiscal stimulus announced by the Chinese government.
Jan-20

Jan-21

Jan-22

Jan-23

Sep-23

Jan-24

Jan-25
May-20

Sep-20

May-21

Sep-21

May-22

Sep-22

May-23

May-24

Sep-24

SOURCE: Bloomberg | BPD- Barrels per day

Global interest rates

Last Move by
Central
Country Rate the central CPI YoY Real Rates
Bank Rate
bank
US Fed funds Cut 4.38% 2.9% 1.48% ❑ Over the last FOMC meetings, US Fed had
UK Bank Rate Cut 4.50% 2.5% 2.00% conveyed that it is now getting attentive to
both sides of the dual mandate - inflation and
Canada Overnight Cut 3.00% 1.8% 1.20% employment data, as compared to focusing
only on the former.
Switzerland Target Rate Cut 0.50% 0.6% -0.10%
Eurozone Deposit rate Cut 2.75% 2.5% 0.25% ❑ FOMC cut its policy rate in Dec 24 for the
second time by 25 bps to 4.25% to 4.50%.
Japan Policy rate Hike 0.50% 3.6% -3.10%
Australia Cash rate Hike 4.35% 2.5% 1.85% ❑ There is another 50 bps of rate cut projected
by federal reserve in 2026 and another 25 bps
South Korea Repo rate Cut 3.00% 2.2% 0.80% in 2027. This should take the final fed fund
Taiwan Discount rate Hike 2.00% 2.7% -0.70% rate to 3.25% from 4.50% at present.

China Loan Prime rate Cut 3.10% 0.1% 3.00%

India Repo rate Cut 6.25% 5.2% 1.05%
Russia Key Policy rate Hike 21.00% 9.5% 11.50%

SOURCE: Bloomberg | Data as on 2nd Feb 2025

 Monthly key macro indicators

Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 Nov-24 Dec-24

Trade Balance (USD Bn.) -17.5 -18.7 -15.6 -19.1 -22.4 -21 -23.5 -29.7 -20.8 -27.1 -37.9 -22

Crude Indian Basket (USD) 79.2 81.6 84.5 89.5 83.6 82.55 84.15 78.27 73.69 75.12 73 73.3

Bank Credit ( Industry %) 7.8 8.6 8.9 6.9 8.9 8.1 10.2 9.8 9.1 8 8.1 7.4

Bank Credit (Services %) 20.7 21.2 20.8 19.2 20.7 15.1 15.4 15.6 15.2 14.1 14.4 13

Bank Credit (Retail) 18.4 18.1 17.7 17.4 17.8 16.6 17.8 16.9 16.4 15.8 16.3 14.9

Manufacturing PMI 56.5 56.9 59.1 58.8 57.5 58.3 58.1 57.5 56.5 57.5 56.5 56.4

Services PMI 62 60.6 61.2 60.8 60.2 62.3 60.3 60.9 57.7 58.5 58.4 59.3

SOURCE: Bloomberg | Data – Latest available

 Valuations

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30
India valuation vs Emerging markets
Nifty Trailing P/E
50 ❑ 1-year forward PE for Nifty 50 stands at ~19.9x is now ~
19% below its peak multiple in FY 19 of ~24.5x.
40
23.69 ❑ 1-year trailing PE for Nifty 50 stands at 23.7x, moderately
30 21.92 higher than its 10-year historical average.
20
❑ Earnings for FY26 remains key to sustain valuations; Strong
10 USD could continue to impact EM flows.
0 ❑ In P/E terms, the Nifty 50 is trading at ~72% premium to
'14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 the MSCI EM index, above its historical average of ~51%.

❑ Geopolitical risk, and Crude price remains a key risks

P/E premium (%) for Nifty 50 v/s MSCI EM especially post the recent escalation in the Middle East
100
conflict.
80
72 ❑ The US presidential election results have increased
60 51
volatility in capital markets as potential actions by the US
administration seems inflationary and support strong
40 dollar. This impacts EM flows.

20 ❑ Any shift in Government’s fiscal priorities away from capex

needs to be monitored.
0
'14

'15

'16

'17

'18

'19

'20

'21

'22

'23

'24

'25

SOURCE: Bloomberg | Past performance may or may not be sustained in future

Forward valuations
1 year forward Nifty P/E

❑ The Nifty is trading at a 1 year forward P/E ratio of

19.9x near its 10-year long term average of 20.6x

1 year forward Nifty P/B

❑ Nifty P/B of 3.1x represents a 10.7% premium to

its historical 10-year average of 2.8x.

SOURCE: Bloomberg | Past performance may or may not be sustained in future

Valuations – Midcap vs Nifty 50

Midcap 100 Premium to Nifty 50

140.0 ❑ The headline valuation premium for Nifty Midcap 100 vs
120.0 Nifty 50 has come down to 57% by the end of Jan 2025
from the highs of ~71% in July 2024.
100.0
❑ The headline valuation premium for small caps vs Nifty
80.0 57 50 has also come down to ~30-35%.
60.0
❑ Amid high valuations within the mid and small cap
%

40.0 33.7 space, Large caps offer better risk-reward.

20.0 ❑ Broad-based economic & investment cycle recovery
implies sustained opportunities in mid and small caps in
0.0
the long term.
(20.0)
❑ However, stock selection based on execution and
(40.0) margin trends will become more critical in the medium
'13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 term.

SOURCE: Bloomberg | Past performance may or may not be sustained in future

Sector valuations

Dec-24 Jun-24
Sector
P/E 10 year Average P/E 10 year Average
Auto 23.3 27.6 24.2 27.0
Private Banks 15.9 21.1 15.0 21.0
PSU Banks 7.1 10 8.3 10.4
NBFC 12.6 12.4 15.3 17.0
Capital Goods 39.3 28.8 46 28.4
P/E
Cement 36.7 28.2 31.7 27.0
Consumer 42.7 41.8 43 40.9 Expansion
Healthcare 33.7 26.9 30.1 26.9
Contraction
Infrastructure 23.7 11.8 28.4 10.9
Logistics 24.3 21.2 30.6 20.8
Media 16.4 25 18.3 25.3
Metals 10.3 10.8 16.5 11.1
Oil & Gas 14.2 12.6 14.2 12.2
Real Estate 44.1 29.6 51.9 28.0
Retail 83.6 83.5 77.3 86.7
Technology 28 20.9 22.9 20.3
Telecom Loss 63.9 Loss 63.8

SOURCE: Bloomberg | Past performance may or may not be sustained in future | Data as on 31st Dec 2024
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