Unlock Potential Opportunities in the Nifty Index

By Priyanka Sachdeva, Senior Market Analyst for Phillip Nova

2024 is without doubt is a year for Asia’s boom and India’s resilience against atrocities of the COVID-19 pandemic, the ongoing geopolitical tensions, and elevated interest rates. The latter of which has been catching a lot of attention recently from a foreign direct investment perspective. Many analysts speculate that India might be entering a decade-long era of infrastructure development, especially after it surpassed China as the country with the world’s largest population.

February 2024 marked a pivotal period for investors worldwide as the global equity markets experienced notable movements. During this period, India emerged and achieved a significant milestone back in January when its stock market cap surpassed Hong Kong’s 4.3 trillion. Despite a downturn in certain sectors such as banking, energy, and telecom, the Indian stock exchange reflected signs of a potential recovery and growth in March 2024. Not only that, India’s growing retail investor base, continuous inflows from Foreign Institutional Investors (FII), robust corporate earnings, and strong domestic macroeconomic fundamentals, have positioned India as an attractive alternative investment opportunity.

The administration of Prime Minister Narendra Modi has focused on supporting economic growth, reducing the fiscal deficit, and working around fostering businesses. Pro-growth policies included liberalisation of corporate tax and reduced caps on foreign ownership along with infrastructure development, an area that was earlier lagging, has been in focus in the last couple of budgets.

India’s expanding, working-age labour force could also help propel the next leg of economic growth. India’s demographic advantage – a population with a median age of around 29 years makes India more attractive to domestic and foreign companies. By 2030, India will be home to 1 billion working-age adults who are also becoming wealthier, driving domestic demand. Its strategic location and tax incentives along with its young, well-educated, and inexpensive labour force, are also enticing. 

India is revitalising its manufacturing capacity as lower tax rates for manufacturers make the country more competitive. Apple, a prominent player, has been ramping up iPhone production in India and plans to produce over a quarter of new iPhones in India. We’re seeing more automobiles, pharmaceuticals, electronics, and other producers being drawn to India. India has harnessed digitalisation including payments and e-commerce which has provided lift to the broad economy and rural-urban gap. The Reserve Bank of India recently revamped monetary policy with a focus on stabilising the Indian rupee and inflation, key measures to improve macroeconomic growth.

From a financial market standpoint, the Gift Nifty index represents an emerging market with an elevated growth outlook driven by robust domestic consumption. Multi-faceted opportunities across large, small, and mid-caps can be witnessed and presently the retail flows into domestic mutual funds, by Indian investors, is pretty significant. Attractive earnings pose as the cherry on top with ample room for improvement as businesses focus on ramping earnings and Return on Equity. Double-digit growth in corporate earnings is starting to reflect India’s high GDP growth forecasts which many analysts believe is likely a trend that will continue. 

Despite trading near an all-time high, the tug-of-war between bulls and bears is leading investors to doubt the sustenance of the ongoing upside momentum. Because the Federal Reserve is reluctant to the loosen reins on inflation and embark on rate cuts anytime soon, it is not surprising that an investor may second guess himself with regard to whether or not the exponential growth continues.

Presently, the short-term and near-term trends of the Gift Nifty index remain weak (at the point of writing). Matching the daily indicators’ bearish momentum, a decisive move below 50 DMA, currently at 22020 could open sharp weakness down to the next lower support of 21,500 levels followed by 100 DMA 21337.

From a long-term perspective, our analysts believe that India is on the cusp of a new era, as it benefits from wide-ranging pro-growth reforms. India’s real GDP growth rate of the past 20 years has averaged 6%–7% annually, which not just is higher than many developed and emerging markets but is expected to continue growing.

However, India is scheduled to hold presidential and state assembly elections in April and May. Any significant change in leadership could pose a market risk as our pro-investment bias heavily relies on a growth-friendly administration. However, the current market sentiment is pricing in continuity for Modi and his party. It is important to consider other global risks, such as the possibility of a deep recession in the Western hemisphere, a surge in energy prices due to geopolitical tensions, and persistently higher borrowing rates. Risk-averse investors are likely to remain on the side lines till the Lok Sabha elections shed further clarity. 

In a nutshell, India is a highly attractive inclusion in a diversified global equities portfolio from a long-term perspective. The country offers the following key value propositions to investors: 1) A supportive pro-growth backdrop, 2) A young, well-educated, and affordable labor force that is expected to drive demographic growth, and 3) Strong potential for economic and earnings growth.

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