After the recent market correction, Nifty’s valuations have returned to levels that align with its 5-year and 10-year averages, according to a report by HSBC Mutual Fund.
Despite short-term challenges, the report maintained a positive outlook on Indian equities, citing a strong medium-term growth potential. It said “Nifty valuations are now in-line with its 5/10-year average. We remain constructive on Indian equities supported by the more robust medium term growth outlook”.
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The report acknowledges a temporary slowdown in India’s economic momentum but emphasises that the long-term outlook remains robust. One of the key factors supporting this optimism is the expected rise in India’s investment cycle. The government’s continued focus on infrastructure and manufacturing investments is likely to drive economic growth. Additionally, private sector investments are expected to pick up, further boosting economic activity. It also highlighted a recovery in the real estate sector, which could contribute to economic expansion.
The report predicts that private investments will rise in key areas such as renewable energy and its supply chain, localization of high-end technology components, and India’s integration into global supply chains. These factors could help accelerate India’s economic growth in the coming years. The report also stated Nifty consensus EPS estimate for CY25 have been cut by about 2 per cent (YoY) in February with the conclusion of the earnings season.
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However, due to the sharp market correction valuations have moderated further. Nifty now trades on 18.1x 1-year forward PE. This is now a 7 per cent discount to its 5-year average and in-line with its 10-year average. It added that the valuations in midcap and smallcap space have also moderated following the sharp correction over January and February.
Overall, while short-term uncertainties exist, HSBC Mutual Fund believes that India’s long-term growth story remains intact. Strong policy support, increasing private sector participation, and structural improvements in key industries are expected to keep the country on a steady growth path.