Despite the wobble in the markets over the past few weeks, Indian equities remain expensive as measured by several yardsticks. India's market capitalisation-to-GDP ratio, for instance, has touched a multi-year high. The ratio is currently at 116 per cent, based on the FY22E gross domestic product (GDP) number, above its long-term average of 79 per cent.
'Rising Covid cases and localised lockdowns are being closely monitored.'
Domestic equity markets are in elite company. In May, Indian markets joined select developed markets (DMs) such as the US, UK and Germany to record new all-time highs. Among emerging markets (EMs), Brazil is the other market to have logged new highs this month. Asian peers such as South Korea, Taiwan and New Zealand are currently between 2 per cent and 10 per cent below their previous highs made earlier this year. The domestic markets were among the worst-performing major global markets in April amid a lethal second-wave of covid-19 infections.
Despite a massive underperformance at the bourses since the last six months, analysts are turning optimistic on Reliance Industries (RIL). Those at Jefferies, for instance, say that the company is a proxy play for India's consumption growth story. The key catalysts for the stock, according to a Jeffries note, include faster-than-expected market share gain in retail, oil-to-chemicals (O2C) stake sale, recovery in gross refining margins (GRM), potential public listing of Jio and even a possible banking licence going ahead. That apart, analysts feel any tariff hike in Reliance Jio (RJio) - its telecom venture - will also aid performance. With balance sheet adequately de-levered, proceeds from a strategic stake sale in the O2C business will create a sizeable war chest for the company, analysts say.
'Favourable product mix, sales recovery, and cost saving initiatives are expected to support margins going ahead while focus on debt reduction (target of debt free by FY24) will aid balance sheet strength'
Illustration: Uttam Ghosh/Rediff.com After a brief respite at the year's start, FPIs have dumped shares worth more than $5.7 billion (Rs 42,596 crore), taking the cumulative net outflows since October to $10.5 billion (Rs 78,466 crore), and adding to the volatility on the bourses. The figure would have been a lot worse had it not been for net purchases to the tune of $5.7 billion in the primary market from October to date.
After a stellar run in 2021 that saw the S&P BSE Sensex and the Nifty50 clock gains of 20 per cent and 22 per cent respectively, global equity markets, including India, are gearing up to welcome 2022 on a cautious note. For one, new variants of the Covid -19 infection that make current vaccines less effective is one of the key risks worth flagging, analysts said. Inflation was also a risk for this asset class in 2021, although most market participants expect that the current elevated inflation levels will be transitory.
However, despite Covid, Indian markets registered their best financial year performance in a decade, with the Sensex and Nifty50 rallying 68 per cent and 71 per cent, respectively, in FY21.
With a potential for a 10x growth in pre-tax profit from the business over the next decade, retail including e-commerce will be the next growth engine for Reliance Industries Ltd, Goldman Sachs said in a report. After growing 5x over FY16-FY20, RIL's core retail revenue growth has taken a pause in FY21 (April 2020 to March 2021) due to Covid related macro headwinds including lower footfalls. The oil-to-telecom conglomerate run by billionaire Mukesh Ambani used the period to build strong digital capabilities of the retail business while continuing to expand its physical reach.
'As valuations of large-caps appeared to be out of whack, investors started lapping up quality mid-caps and small-caps, which were available at relatively comfortable valuations.'
Its production declined for the third consecutive year in financial year 2020-21 (FY21) to an 11-year low, while sales volume contracted for the second year to the lowest since FY15. The company manufactured around 1.08 million vehicles last fiscal, a decline from 1.17 million the previous year, and a steeper fall from its all-time high tally of 1.62 million reported in FY18.
While Wipro leads the pack on absolute numbers, analysts for Infosys for reporting consistent growth, revising FY22 guidance and beating TCS on revenue growth.
'One can start accumulating economy driven stocks in the next few months with a two-three year view.'
'In the short term, we may see some disruptions due to Covid, but in the medium-to-long term, we should keep an eye on US inflation and 10-year bond yields.'
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