Standard Chartered's projection

Educational insights
1

What are the primary structural drivers boosting the Indian stock market, and how does Standard Chartered’s projection of the Nifty index EPS growth align with historical and anticipated market trends?

2

A very pertinent question! Given the complexities of financial markets, it’s crucial to understand these structural underpinnings. Let me break down Standard Chartered’s viewpoint and its implications:

Key Structural Drivers Fuelling the Indian Stock Market:

  1. Robust Domestic Macroeconomics:
  • A diversified economy that serves as a bedrock for consistent earnings, making India less vulnerable to sector-specific downturns.
  1. Strong Corporate Health:
  • Improved corporate balance sheets and a robust financial sector ensure sustainability in earnings growth, which ultimately reflects in stock valuations.
  1. Stable Domestic Currency:
  • A decline in foreign exchange risks implies reduced volatility in earnings, making the market more attractive to both domestic and foreign investors.
  1. Technological and Formalisation Dividend:
  • Earnings growth is powered by increased formalisation of the economy and technological advancements, leading to improved capacity utilisation and efficiency gains.
  1. Reduced Dependence on Foreign Capital:
  • Enhanced domestic financial inclusion translates to steadier domestic capital flows, reducing the market’s vulnerability to volatile foreign capital movements.

Standard Chartered’s Nifty EPS Projection - Historical Context:

The bank has drawn a parallel between the present equity cycle and the 2003-2008 bull run. During that period, the market experienced a robust output growth combined with stable inflation. This backdrop propelled investments without causing a surge in the current account deficit, thanks to a boost in public and private corporate savings.

Some Key Stats to Consider:

  • Nifty’s average EPS growth was 20% between FY21 and FY23.
  • Standard Chartered predicts an EPS growth of 18.7% in FY24 and 16.6% in FY25.

Incorporating these projections with the present macroeconomic indicators:

  • External Debt-to-GDP Ratio: A low 18.4% in FY23, comfortably below the 10-year average of 21.6%.
  • Credit Growth: A notable high, with a growth rate of 15% YoY for FY22-23.
  • Capacity Utilization: At 74% in Q3 FY23, it’s trending above the long-term average.

The amalgamation of these structural drivers with the projected and historical data paints a promising picture for the Indian stock market in the coming years. However, it’s pivotal for investors to remember that while these projections offer an educated forecast, stock markets remain inherently unpredictable due to countless influencing factors.

In summary, the Indian stock market’s current trajectory, bolstered by structural advantages and echoed in Standard Chartered’s projections, holds potential. Yet, it’s wise for investors to diversify, remain informed, and adapt to the ever-evolving landscape.

Happy investing!

Disclaimer: This is a personal interpretation based on provided data and does not constitute financial advice. Kindly consult with financial professionals before making any investment decisions.