Expectations of strong demand during the festive season, a revival in rural spending, and potential interest rate cuts later this fiscal year are set to bolster stock markets, according to the latest “India Strategy” report by brokerage firm Prabhudas Lilladher.
Despite increased volatility amid a worsening geopolitical landscape, both Nifty and Sensex have maintained their upward momentum over the past month. The report suggests that normal monsoons have fueled hopes of a demand surge during the festive season. Additionally, inflation falling below the Reserve Bank of India’s (RBI) 4 percent target in July, coupled with sustained government capital expenditure and fiscal prudence, has provided support to Indian equities.
Retail inflation in India, which had breached 5 percent in June, saw a sharp decline in July, with the Consumer Price Index (CPI) at 3.54 percent, according to the Ministry of Statistics and Programme Implementation. While inflation remains a challenge globally, India has managed to navigate this issue effectively.
Rural demand, which had been subdued since the COVID-19 pandemic due to cautious consumer behavior, high inflation, and subpar monsoons in 2023, is showing signs of recovery. “The worst seems to be over, as we are observing positive trends in rural demand over the past few quarters,” the report noted.
Liquidity in the Indian markets has also remained robust, with domestic institutional buyers compensating for foreign outflows. “Domestic inflows have significantly outpaced FII flows, providing a cushion to the markets. We believe that expectations of strong festive season demand, a rural revival, and interest rate cuts will continue to support the markets,” Prabhudas Lilladher said.
The brokerage also highlighted the upcoming US elections as a key factor to monitor, given the escalating geopolitical tensions worldwide. Investors are likely to gravitate towards defensive stocks such as consumer durables, building materials, IT services, pharmaceuticals, and telecom, due to high valuations in other sectors.
Prabhudas Lilladher identified capital goods, infrastructure, logistics, ports, hospitals, tourism, automobiles, new energy, and e-commerce as promising investment themes but advised investors to remain cautious about valuations.
Nifty reached an all-time high of 25,115 points today, with Prabhudas Lilladher projecting further gains, potentially reaching 26,820 points. “We anticipate market consolidation and recommend selective buying during dips, with a strong emphasis on quality,” the report advised.
(ANI)