Receding fear of rate hikes, positive global cues create optimism zone for Indian equities

The Indian equity market seems comfortably seated in an optimism zone, sending stock prices to zoom, thanks to an ebbing fear of rate hikes in a recessionary environment, positive growth cues from around the world, and a lower valuation premium for emerging markets.

In a report, ICICI Securities has stated that the issue created by the banking crisis in the US, which had triggered the apprehension of an imminent recession and impending slowdown in Indian economic recovery, is now being addressed and resolved, as seen from the sharp rally in Indian stocks since the lows of March 2023.

The market correction of March was triggered by collapse in US banks, resulting in the NIFTY50 P/E valuation premium over the MSCI EM index reverting closer to its long-term median of around 45 percent. However, to everyone's surprise, this did not impact the domestic demand-driven economic activities, which stayed positive so far, as is reflected by robust high-frequency indicators such as GST and PMI for April 2023, ICICI Securities said in the report.

The Q4FY23 earnings base for the NSE 200 index (excluding commodities) has expanded by around 21 percent on-year, with results largely in line with expectations. The NSE200 index has shown an on-year growth of approximately 9 percent for the fourth quarter as of now, with a growth rate of 21 percent, driven primarily by financials, autos and technology. Metals and cement sectors, however, acted as major drags on earnings.