Major brokerages continue to vote for India growth, earnings story

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This will be music to the ears of investors in India. Major US-based brokerages keep sounding bullish on India despite the election results giving a muted mandate to the ruling alliance at the Centre even paving the ground for a coalition government led by the reform-oriented Bharatiya Janata Party and not-so-reform-minded parties such as JDU and TDP.

Notwithstanding BJP falling conspicuously short of a decisive mandate, several analysts have told the Business Standard that growth prospects of the economy and that of the earnings of companies remain stable and investors can actually utilise the poll-related fall since the overall momentum is well poised to continue.

And the overall sentiment remains bullish despite the possibility that social sectors might corner a bigger share of the resources as well as subsidies.

“The BJP is falling short of a majority but our base case is that the BJP-led National Democratic Alliance (NDA) is likely to form the next government. Our medium-to-long term views do not change,” said a note by Morgan Stanley.

The brokerage’s India equity strategist Ridham Desai believes that BJP losing seats compared to 2019 was “largely down to local and non-economic issues” and “the BJP-led NDA government is unlikely to sacrifice macro stability as its anchor to economic policy.”

While making this headline statement, Morgan Stanley has also cautioned that it has not factored in any difference between the NDA partners that might prove to be unresolvable.

Another US-based brokerage to express confidence in the Indian growth story is Goldman Sachs which said that any weakness in the markets should be exploited as a buying opportunity. Like Morgan Stanley, it also felt that the country’s growth and earnings stories would continue. Strategist Sunil Koul of Goldman Sachs said market returns will be driven by expected earnings growth of 15% in 2024-25.

Another US-based brokerage Bernstein said that facts that NDA partners who are trying to form the government had a pre-poll alliance and consensus on policies could contribute to stabilise the new government. The brokerage has kept its Nifty target unchanged at 23,500.

The managing director (MD) & strategist at Bernstein, Venugopal Garre, said, “The setback may, however, be enough to change the focus: push the government to tweak some of its policies and increase spending towards direct social schemes. With capital expenditure (capex) likely to be driven more by the private sector as end markets are changing, the role of the government will moderate over time, limiting material risks to the cycle.”

HSBC believes the election verdict will trigger consolidation in the market. “While the outcome should not alter India’s long-term attractiveness – and we still think India’s overall Goldilocks scenario is intact – in the shorter time-frame it will impact risk-tolerance in the market. This will trigger preference for defensiveness,” said Amit Sachdeva, India Equity Strategist, HSBC.

However, a few brokerages, such as CLSA and IIFL Securities, did appear a bit diffident.

CLSA said the election results have altered the mood. “PM Modi is seen as a strong leader, who has so far always led a government with simple BJP majority, even during his tenure as Gujarat chief minister. These dynamics could make India watchers question if this coalition setup can coordinate well among itself to provide a stable government,”

“BJP’s own struggle to 240 seats will likely interrupt fiscally and politically challenging reform efforts, cause more populism and potentially impact medium-term growth. This will surely cause multiple compression,” read a note by IIFL Securities.

The markets, however, behaved in completely opposite ways on June 4 and 5. While the broader Sensex and Nifty dived by 5.74% and 5.93% respectively on June 4, on the very next day at the sight of JD(U) and TDP offering support to Narendra Modi’s leadership led to recovery of 3%.