International brokerage Nomura has maintained an 'overweight' stance on Indian equities within its Asian portfolio. On the other hand, rival China received a 'neutral' call. Nomura's bullishness over India is based on its structurally positive view on domestic equities despite acknowledging near-term risks from slowing macroeconomic and earnings momentum.
While chatter about stretched valuations does make India vulnerable to global "risk-off" scenarios, Nomura views any underperformance as transitory, reinforcing its structurally positive outlook. Along those lines, Nomura sees the market likely stabilising a couple of quarters before the economy bottoms out.
"While India is undergoing a cyclical slowdown, this does not significantly detract from its long-term appeal. The market remains supported by a strong 'China+1' narrative, underweight positions of emerging market (EM) funds providing a cushion, and benefits from a K-shaped economic recovery," Nomura wrote in a note.
According to analysts at the brokerage, earnings growth prospects for India Inc in 2025 also remain relatively robust despite some moderation. Even with the potential for some downgrades, domestic equity flows have held steady despite October’s market pullback, adding another layer of cushioning for Indian equities.
"India’s highly liquid stock market, home to numerous high-quality growth companies, acts as a counterweight to North Asia in tariff-driven scenarios, especially as China continues to underperform in its recovery," Nomura said. The brokerage also identified India’s equity index as one of the most diversified in Asia, with a mix of domestic growth and external facing
sectors. This diversification, according to Nomura, offers some resilience in the face of domestic challenges and prohibiting the market from suffering too much from concentration.
Follow our market blog to catch all the live action
Another factor that makes Nomura optimistic over India as compared to other Asian peers is the economy's less exposure to global trade slowdowns or protectionist risks. Alongside that, long-term investment themes such as rising FDI through initiatives like the PLI scheme, and the financialisation and digitalisation of the economy adds to its attractiveness.
Among Indian equities, Nomura suggests investors to adopt a bottom-up selection strategy, with focus on stocks with valuation support and domestic orientation (such as banks and infrastructure), those linked to US growth (IT), and defensive sectors like pharma, select telecom, and consumer goods.
On the stock-specific front, the brokerage chose Reliance, Infosys, ICICI Bank, Hindustan Unilever, Lupin, L&T, and Bharti Airtel as its major picks. Additionally, Nomura also likes stocks benefiting from structural themes like the rise of EV adoption or unique idiosyncratic factors, such as Mahindra & Mahindra and Shriram Finance.
While the optimism for India runs high, Nomura also pointed a few key risks that might dent its outlook. Some of the headwinds highlighted by Nomura include the potential fund reallocation to China, unstable domestic politics, regulatory tightening, or sanctions on oil purchases, which it believes could strain the positive narrative.
"Additionally, stretched government finances may lead to populist measures, reduced capital expenditure, or higher taxes, while rising oil and commodity prices could further pressure the economy," it said.
Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
