India Witnessing a Mini-Goldilocks Moment

Even though the valuation of the Indian stock market is rising to premium levels, its stability and appealing medium- to long-term prospects are still secure. This is attributed to a combination of strong macroeconomic conditions, steady policy momentum, stable interest rates, and a gradual decrease in inflation.

According to brokerage firm Motilal Oswal Financial Services, "India is witnessing a mini-Goldilocks moment, thanks to solid macroeconomic conditions, healthy corporate earnings, peaking interest rates, moderate inflation print, and ongoing policy momentum."

The brokerage firm noted that the Nifty 50 is currently trading at a 12-month forward P/E (price-to-earnings) ratio of 19.2, which is close to its long-period average (LPA) of 20.3, representing a 5% discount. Similarly, the 12-month trailing P/E for the Nifty 50 stands at 21.9, nearly matching its LPA of 22.4, with a 2% discount.

Conversely, Motilal Oswal highlighted that the Nifty's 12-month forward P/B (price-to-book) ratio of 3.1 is 12% above its historical average of 2.8. Additionally, the 12-month trailing P/B ratio for the Nifty stands at 3.5, which exceeds its historical average of 3.1 by 16%.

The Nifty is trading at a 12-month forward RoE (return on equity) of 16.3%, above its long-term average, said the brokerage firm.

Motilal Oswal noted that India's market capitalisation-to-GDP ratio has experienced significant volatility, dropping from 80% of FY19 GDP to 56% in March 2020. However, it rebounded sharply to reach 112% in FY22. "The market capitalisation-to-GDP ratio moderated to 96% in FY23. It is now at 132% (of FY24 GDP of 9.6% YoY), above its long-term average of 85%," said Motilal Oswal.

Talking about its model portfolio, Motilal said it is aligned with the key domestic cyclical themes. "We remain overweight on financials, consumption, industrials, and real estate. Industrials, consumer discretionary, real estate, and PSU banks are our key preferred investment themes," said Motilal Oswal.

Motilal's top picks from the large-cap space include ICICI Bank, SBI, ITC, Larsen and Toubro, HCL Tech, Mahindra and Mahindra, Coal India, Titan, ABB, Zomato, and Hindalco.

In contrast, the top picks from the mid and small-cap segments include Indian Hotels, Godrej Properties, KEI Industries, Global Health, JK Cements, PNB Housing, Cello World, Sobha, Kirloskar Oil, and Lemon Tree Hotel.

Motilal Oswal Financial Services Ltd (MOFSL) is a non-banking financial company (NBFC) registered under the Reserve Bank of India Act, 1934. The company provides a wide array of financial products and services, including Institutional Equities, Asset Management, Housing Finance, Currency Broking, Private Equity, Private Wealth Management, Commodity Broking, Investment Banking, Loans Against Securities, Retail Broking and Distribution, and various Investment Activities.

It has a diversified client base including retail customers (including High Net Worth Individuals), Mutual Funds, Foreign Institutional Investors (FIIs), Financial Institutions and Corporate Clients.