pain for Indian stock market After falling 3% in May, the major benchmark index Nifty fell nearly 5% in June. Analysts at Motilal Oswal Financial Services Ltd said the market closed in the red for the third consecutive month in June with a month-on-month decline since March 2020.
The Indian stock market has seen relatively little correction as compared to other Asian markets. For example, major benchmark indices in Korea, Taiwan and Brazil have each fallen more than 10% in June compared to May in local currency terms. In fact, the MSCI Emerging Markets Index dropped 7% sequentially in June.
However, the point of concern here is that the outflow of foreign funds from Indian stocks continues. Foreign institutional investors (FIIs) recorded outflows of $6.3 billion with June outflows for the ninth consecutive month – the highest since March 2020, the Motilal Oswal report said. That said, domestic inflows in June were strong at $6 billion.
So far this calendar year, $26.7 billion has been invested. While DII has helped contain the steep decline in the Indian market, volatility remains high in the backdrop of rising interest rates and concerns about tightening liquidity.
Consequently, due to this correction, Nifty trades at 18.4x FY23E, which is below its 10-year average price-to-earnings multiple of 19.5x.
Further, analysts at BNP Paribas India say that though sectors such as FMCG and pharma are trading close to or below their five-year average next twelve-month PE, it is still at a premium to their valuations in 2010-14. Is. A report dated July 5 said, “FY 22-25E earnings CAGR for FMCG, IT and Pharma is lower than their earnings CAGR in FY 2011-15, which are trading at a valuation premium. ” CAGR is short for Compound Annual Growth Rate.
Income distribution will be critical for sectors such as capital goods and consumer durables that are trading at a premium to their history on higher than expected earnings growth expectations, the report said.