Speedbumps imminent for domestic market, says Emkay Global


Emkay Global Financial expects Indian stock markets to move in a sideways with a negative bias for the rest of FY24.

“The longer-term top-down narrative remains attractive, with SMIDs (small- & mid-caps) leading the markets for the next 2-3 years. The shorter-term bottom-up story, however, is more challenged with valuations stretched for our favoured themes and macro negatives over the next two quarters,” the domestic brokerage said.

India story intact

Notwithstanding the short-term stresses, Emkay sees the resilient growth story for India continuing. Unprecedented financial stability is the key driver, as every aspect of India’s ‘balance sheet’ is robust.

This enables encashment of the demographic dividend and rising per-capita income should drive affluence and premiumisation.

“Capex recovery is the icing. This propels a multi-year earnings growth momentum and the ‘premium valuations’ should be judged in this context,” the report said.

“In our view, stay defensive for the short term and use any meaningful correction to add to pro-cyclical exposures. We like mid-cap lenders, building products, chemicals and hotels. Our key avoids are large-cap lenders, large-cap IT, and consumers,” it added.

SMIDs have been driving the post-Covid recovery in the markets. Some froth may recede in coming quarters, but the medium-term outlook remains robust. Earnings growth has been democratised in India with broader participation across companies. Fragmented industrial sectors, with no clear leaders, reinforce the momentum.

Thematic approach

The broking firm is bullish on three themes.

Manufacturing: A multi-year growth trend that is yet to fully play out. This includes capital goods, auto ancillaries, chemicals, metals, and pharmaceuticals. The focus of this theme will be SMIDs, as there are few large caps available.

Premiumisation: B2C companies will generally remain laggards, but we see a pocket of opportunity in premiumisation. As India’s per-capita income breaks new levels, premium segment growth should get an impetus and companies catering to this segment should outperform.

Technology wave has allowed mass-market companies (mainly consumer and BFSI) a non-linear footprint expansion. Internet companies and digital transformers will benefit due to this transition.


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