- Foreign investors' selling in Indian financial stocks may soon reverse, says JPMorgan
- Financials expected to improve with easing geopolitical tensions and attractive valuations
- JPMorgan forecasts double-digit earnings growth for Indian companies in FY27 and FY28
Foreign investors' persistent selling in Indian financial stocks could be nearing a turning point, according to JPMorgan, which expects the segment to perform better as geopolitical pressures ease and valuations become more attractive.
Rajiv Batra, head of Asia & co-head of global emerging markets equity strategy and chief India equity strategist at JPMorgan, told NDTV Profit that financials could see stronger performance as the war subsides, while a reversal in foreign portfolio investor outflows would provide an important catalyst for Indian markets.
Financials Could Be Next Leg Of Market Recovery
Financial stocks have remained under pressure as foreign investors have consistently reduced exposure to the sector. JPMorgan, however, expects the outlook to improve, with better valuations and the possibility of higher credit growth providing support.
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Batra said the brokerage expects much higher credit growth for financials, while also seeing scope for better valuations across the segment.
At the same time, higher bond yields remain a concern for some banks, making the trajectory of interest rates and funding costs an important factor for investors to watch.
Earnings Could Keep The Market Supported
JPMorgan expects Indian companies to maintain double-digit earnings growth, with earnings growth momentum likely to start building over the next two to three quarters.
The brokerage expects India's earnings to grow 11% year-on-year in FY27 and accelerate to 15% in FY28.
Batra said Indian large-cap stocks would need high-teens earnings growth to justify a meaningful valuation premium over the next 12-18 months. However, investors should not rely heavily on valuation re-rating alone, he cautioned.
This makes earnings delivery rather than multiple expansion the key driver for the market from here.
Power, Autos Stand Out; IT Under Pressure
Beyond financials, JPMorgan remains positive on the power and automobile sectors, while the global software sector continues to face pressure.
The brokerage expects India's relative market performance to improve, with the broader market already showing better relative performance.
Batra said the Indian market's story is increasingly about relative performance, rather than simply absolute returns. A reversal in FPI selling could therefore become an important catalyst for the next phase of the market.
What Could Change The Market Narrative
JPMorgan sees the possibility of a comeback in Indian equities as earnings momentum strengthens. El Niño, once viewed as a major market risk, is now a “much-known headwind”, according to Batra, suggesting that investors have had more time to factor the risk into valuations.
For now, the key watchpoint is whether foreign selling in financials reverses. If that happens alongside stronger credit growth and improving earnings, the sector could become an important driver of India's relative market performance.
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