The Indian economy is set to see a cyclical recovery and stocks in the domestic pharma, diagnostic, construction and infrastructure sectors will benefit.
“We see a reasonably strong but lagged correlation between liquidity and industrial growth. As we see things today, there's a complete divergence. There is ample liquidity but growth is still struggling,” Saion Mukherjee, India equity strategist at Nomura India, told BloombergQuint. “But as this transition happens, we will see gradual recovery taking place.”
While consumer discretionary will benefit from this initially, the government's policy direction shows that the recovery will be investment-led, he said, suggesting stocks in the construction, infrastructure and capital goods sectors from a one-two year perspective.
In the near term, Nomura expects the indices to give a 7 percent return by the end of the year, from the current levels. That's largely because the financial services company's economists expect India's gross domestic product to dip further in the quarter ended December, before it recovers.
Speaking about global investors, Mukherjee said that while money continues to come into the economy, the areas of stock foreign institutional investors are looking at has narrowed. “The fact is that there are a lot of concerns on the economy and macro and earnings visibility. So I think there are select stocks and pockets that are getting their interest. Not a very broad-based interest at this time,” he said.
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