Optimism grows as Indian equity mkt sees light at the end of the tunnel

In a much-awaited turn of events, the Indian equity market is showing promising signs of recovery and renewed investor confidence as the second half of 2023 unfolds. After a period of volatility and uncertainty, market experts are pointing towards a potential "light at the end of the tunnel" as several factors align to bolster the market's prospects. The year 2023 has started on a positive tone for the world with the MSCI(Morgan Stanley Capital International)index being up at 6% and MSCI EM (MSCI- Emerging Markets index) up 3% however MSCI India is down 9% in Rupee terms, significantly underperforming the world index , according to sources.

One can argue, India has been the best performing economy in the last quarter with its PMI(Purchasing Manager's Index)data being in expansion mode and growing at 59 the highest among global peers, according to recent media reports, hence it should have done well on the bourses as well.The reason behind its underperformance in the bourses could be due to-India's higher valuation compared to the rest of the world which had peaked at 110% compared to EM and 60% compared to MSCI world and now stands at a low 60% and 20% premium respectively, believe experts.

Moreover,the failure of Silicon Valley Bank along with CS (Credit Suisse) being bailed out by UBS had led to the US government increasing their debt by almost US $400 bn in the month of March to arrest the economic downturn.So though money supply growth being flat is the lowest growth in 15 years; the 2-year and 10-year in the interest rate in the US after peaking to 5% and 4% respectively has fallen to 4% and 3.5% suggesting a possibly lower recession in the US but an imminent one,say experts.

It's true that on absolute valuations Indian market have now crossed all time highs,so we are at a peak index level, hence ,there is a bound to be some nervousness among investors.However, according to recent reports we are trading at a 5 year averages of around 20x forward P/E(Price-to-earning). Our expected earning growth will be around 15% CAGR(Compound annual growth rate)in the next two years which is clearly on the upswing compared to the rest of the world.

Hence we believe strong investor interest in India would remain high.As the run-up has been sharp since March 2023, especially for the Mid and Small Cap names,we could also expect a breather in the short-term.Furthermore,we expect India to continue to relatively outperform its peers during the remainder of CY2023 and possibly beyond.In case the US undergoes a stronger than expected recession, Indian markets would also come off or we will have a time wise correction.However,we do not expect it to be significant due to the stronger growth outlook in India.India's growth is relatively resilient so far and the external risk has receded.

Market sentiment has also been buoyed by the accommodative stance of the Reserve Bank of India (RBI), which has taken steps to ensure ample liquidity and support economic recovery. The RBI's proactive measures, coupled with its commitment to maintaining a stable interest rate environment, are instilling confidence among investors.While the road ahead appears promising, experts caution that challenges remain. Geopolitical tensions, unforeseen disruptions in global supply chains, and inflationary pressures are some of the potential pitfalls that could impact the equity market's trajectory. Additionally, the need for ongoing reforms and policy consistency cannot be understated as they will play a critical role in sustaining the positive momentum.