India having a mini goldilocks moment, poised to embrace ‘Amritkaal’ : Motilal Oswal

India’s capital markets are truly poised to embrace the Amritkaal (a golden era), says Motilal Oswal’s (MOSL) latest India strategy report. According to MOSL, India is set to exit FY2024 with a GDP of $3.6 trillion and underlying growth of more than 7.6 percent.

India’s Goldilocks moment

India, MOSL analysts believe, is having a “mini-Goldilocks moment” (an ideal state, where the economy is neither too hot with high inflation, and nor too slow) with strong macroeconomic conditions and corporate earnings, the peaking of interest rates, a moderate inflation print, and ongoing policy momentum.

Additionally, these positive conditions are being supported by healthy flows. Demat accounts have grown to 151 million in March 2024 from 36 million in March 2019 along with  growth in cumulative domestic equity inflows to $92.7 billion over the last five years.

Growth in FY2024, according to the report, was broad-based, with all the indices and sectors delivering positive returns.  The year, according to the report, was a good one for small and mid-caps, with both the Nifty Midcap 100 and the Nifty Smallcap 100 outperforming the Nifty-50 by a wide margin, by 31 percent and 41 percent, respectively.

The top sectoral gainers in FY2024 included Real Estate (133 percent), PSU Banks (89 percent), Capital Goods (77 percent), Auto (75 percent), Energy (71 percent), Healthcare (58 percent), Metals (50 percent), Technology (22 percent), FMCG (18 percent), and Private Banks (14 percent).

Valuations, volatility and Elections

According to the report, “India now boasts a unique combination of size and growth”. Motilal Oswal analysts believe that domestic cyclical themes such as “financialization of savings, private capex revival, rising discretionary consumption, a strengthening real estate cycle, and the massive development of digital and physical infrastructure” will play a role in India’s medium-term growth story.

While the report is optimistic about India’s growth story, MOSL expects to see some intermittent volatility driven by major events such as the General Elections, expensive mid- and small-cap valuations, and potential global macro shake-ups.

Earnings growth for FY24

According to the report, overall earnings growth is expected to be driven by domestic cyclicals, such as Auto and BFSI. The report estimates that these sectors will post 20 percent and 15 percent YoY growth. On the other hand, growth could be challenged due to global cyclicals such as Metals, as well as Oil and Gas, which the report expects will decline by 6 and 12 percent, respectively, YoY.

Other sectors that are expected to report growth include Healthcare (33 percent), Cement (32 percent), Consumers (7 percent), Capital Goods (5 percent), and Technology (4 percent). 
MOSL expects the Nifty EPS to grow 21 percent for FY2024 and around 16 percent for FY2025.