JPMorgan On Indian Stock Market: Indian equities could remain under pressure from earnings concerns, elevated bond yields and global macro risks, with JPMorgan's Head of Asia Rajiv Batra saying it is “hard to see double-digit earnings growth for H2”. He also expects the de-rating of Indian markets to remain constant for some time, even as robust earnings could help limit further valuation compression.
De-Rating To Remain A Constant For Some Time
Batra told NDTV Profit that Indian markets have already “de-rated significantly”, with both the MSCI and Nifty trading below their respective price-to-earnings multiples.
However, he said the de-rating process is not necessarily over.
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“De-Rating will remain a constant for sometime,” Batra said, pointing to elevated bond yields and broader macroeconomic concerns as key factors that could continue to influence market valuations.
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He added that bond yields will determine valuation de-rating, making the direction of yields an important trigger for Indian equities.
Notably, the global bond sell-off intensified at the beginning of the wee, with 10-year government bond yields across major economies hitting multi-decade highs amid rising fiscal deficits, shifting investor demand and massive borrowing needs linked to the AI boom.
The sell-off, triggered by higher oil prices and renewed inflation fears after the US-Iran war, spread across developed markets, with the US 10-year yield touching around 5.3% in late September and early October, its highest since 2002.
Earnings Growth Remains A Key Concern
Batra said it is “hard to see double-digit earnings growth for H2”, highlighting the challenge for markets at a time when valuations are already facing pressure.
He said robust earnings could nevertheless help reduce the possibility of further de-rating.
“Robust earnings can help reduce further de-rating,” Batra said.
The earnings outlook could also vary across segments, with Batra saying large-caps are more prone to challenges than mid-caps. Manufacturing companies, meanwhile, could also see an impact in the second half.
Crude, Inflation And Europe Weigh On Market Mood
The market mood is also being affected by concerns around crude and inflation, according to Batra.
“Crude, inflation concerns are affecting market's mood,” he said, while adding that high bond yields and concerns in Europe remain key triggers for markets.
This combination of macroeconomic risks and elevated yields could therefore remain important for how investors assess valuations going ahead.
RBI Stance Not Much Hawkish, But More Rate Hikes Seen
On monetary policy, Batra said the RBI's stance is “not much hawkish as of now”, but expects another repo rate hike in December.
He also cautioned that the impact of further tightening could become more considerable for non-banking financial companies.
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“Over 2-3 rate hikes can affect earnings of NBFCs,” Batra said.
Only Three Emerging Markets Have Delivered Positive Returns
Looking beyond India, Batra noted that only three emerging markets have delivered positive returns, while IT is the sole strong performer in emerging markets.
He also highlighted the growing importance of artificial intelligence in determining the relative performance of countries and companies.
“Countries that are not AI-strong will suffer,” Batra said.
At the same time, he noted that the AI rally in the US is not getting extrapolated in Asia, suggesting that the strength seen in US AI-related markets has not translated to the same extent across Asian markets.
Foreign Value Investors Seen Entering India
Despite the valuation and earnings concerns, Batra said there are signs of interest from value-oriented investors.
“See value investors from US & UK entering India,” he said.
However, he added that India's premium to emerging markets is not reducing.
For Indian equities, the combination of earnings delivery, bond yields and global risk factors could therefore remain central to the direction of valuations in the months ahead.
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