Multiple Reliefs But No Rally Yet For Indian Equity Market, Says Jefferies
The report highlights several reliefs, including pro-growth commentary from the RBI, no negative impacts from the new income tax bill, broadly in-line earnings results, and strong mutual fund inflows.
Despite multiple positive developments, the Indian equity market has yet to see a significant rally, according to Jefferies’ latest India strategy report. The report highlights several reliefs, including pro-growth commentary from the Reserve Bank of India (RBI), no negative impacts from the new income tax bill, broadly in-line earnings results, and strong mutual fund inflows. However, these factors have not been sufficient to drive a market rally.
The RBI recently reduced repo rate by 25 basis points and deferred the implementation of tighter regulations on Liquidity Coverage Ratio (LCR) and project finance. This move is expected to save Rs 700 crore in liquidity tightening and alleviate immediate liquidity concerns, signaling a shift towards prioritising growth.
The new income tax code, introduced in parliament by Finance Minister Nirmala Sitharaman, aims to simplify the language, eliminate redundant clauses, and reduce the compliance burden on taxpayers. The bill maintains current tax rates, which has been positively received by the markets, especially given concerns about potential increases in capital gains taxes.
Out of 199 stocks in Jefferies’ coverage universe, 176 companies have reported their December 2024 results. The ratio of upgrades to downgrades stands at 40% to 51%, showing significant improvement compared to the previous quarter. The Nifty FY25 EPS and MSCI India EPS remained broadly unchanged, with minor adjustments.
After muted spending by the central government in the first half of FY25, significant growth of 14% year-on-year is expected in the second half. Government spending accounts for approximately 10% of India’s GDP, and a year-on-year swing of around 15% could boost GDP by 1.5 percentage points. GST collections saw an uptick in January 2025, reflecting December 2024 activity, with a year-on-year acceleration of 12.3%.
While these factors provide a foundation for potential market recovery, Jefferies remains cautious, noting that the equity market has yet to respond positively to these developments.
