While the Indian equity market navigates global headwinds and shifting foreign flows, its underlying macro indicators remain resilient, according to Sanjay Mookim, Head of India Equity Research at JP Morgan. In an exclusive interview with NDTV Profit on June 29, Mookim shared his outlook on the economy, banking sector dynamics, and strategic bets for investors.
In the current market scenario, Mookim believes that given India's status as a duration asset with multi-year earnings growth potential, 'investors can happily buy a bunch of 'largecaps' and wait patiently for earnings to compound'. The market expert noted that mid-cap and small-cap companies act as a "beta" to overall economic growth. Until there is a broader economic acceleration, large-cap banks and select blue-chip stocks remain the more confident bet for steady compounding.
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When deciding where to deploy capital, Mookim stressed the need to see if assets look attractively priced or not. Indian equity valuations currently appear reasonable, especially when compared to global equities and other asset classes, according to the global brokerage. The market has successfully absorbed the recent oil shock, bringing relief on the macroeconomic front.
JPMorgan on macro indicators
According to Mookim, the outlook for currency has become more stable in combination with the Reserve Bank of India's interventions. However, foreign inflows face friction because the opportunity cost of capital is too high, particularly with US 10-year bond yields sitting elevated and overnight rates remaining reasonably high. Mookim highlighted that the Indian economy was in a cyclical uptick before the Middle Eastern conflict, driven by consumer stimulus and capital expenditure demand.
While monitoring if this momentum restarts, another domestic variable looms: the weather. A shortage of water can have an impact on the economy over time, especially if back-to-back El Nino events stress agricultural output and eventually weigh on the broader numbers, according to the JPMorgan expert. Analysts believe it is too early to conclude that the Indian market will continue to rally. The bigger concern for most D-Street analysts is the hugely deficient (43%) monsoon.
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Credit growth vs leadership
With limited room for major fiscal stimulus-and since investors can't expect any lower rates environment right now-the heavy lifting for growth falls to the banking sector, according to JPMorgan. Mookim noted that the acceleration in credit is a very important aspect of economic momentum. Currently, credit growth is stronger than expected earlier, running at around 18%.
However, Mookim believes that credit is more for a supply side issue in India; if banks are willing to lend, they will almost always find takers. When looking at private banks, Mookim highlighted that the market focuses on leadership stability in the financial space more than any other sector. However, he emphasized that large Indian banks are heavily institutionalized. Adverse stock reactions due to corner-office transitions at large-cap financials could present medium-term buying opportunities.
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