Invesco: The long-term structural outlook for the Indian stock market remains positive
Invesco Asia-Pacific strategist Zhao Yaoting stated that despite a slight slowdown in the Indian economy and the Nifty 50 index being about 10% lower than last year's peak, the long-term structural outlook remains positive. The main obstacles in the short term are the slowdown in household consumption and stagnant wage growth. The government's tax cuts and interest rate reduction policies may boost consumption, and economic growth is expected to recover moderately. Despite the risks posed by Trump's tariff policies, India's reliance on exports to the United States is low, and there is a need to open more industries to attract foreign investment in the future. High-frequency indicators show signs of recovery, and corporate earnings exceeding expectations may drive the stock market rebound
According to the Zhitong Finance APP, Zhao Yaoting, Global Market Strategist for Invesco Asia Pacific (excluding Japan), expressed his views on the Indian stock market. Zhao stated that the Indian economy is currently experiencing a slight slowdown, which has dimmed the local stock market. The Nifty 50 index is about 10% lower than its peak in September last year, although the total return of the index has rebounded by 267% from the lows during the COVID-19 pandemic. Despite some cyclical headwinds in the short term, the long-term structural outlook for the Indian stock market remains positive as India may soon become the world's largest growth engine.
Zhao pointed out that economic growth is facing some resistance, mainly from: a slowdown in household consumption, especially in urban areas. Stagnant wage growth has weighed on household balance sheets. The earnings of India's large consumer goods companies have slowed in recent quarters. However, the easing of food inflation may alleviate some pressure, which could explain the recent rebound in rural consumption. Driven by the industrial sector, economic growth may see a moderate recovery this quarter.
Two key policies launched in February provide some clues for the Indian government's growth-promoting plans. First, the government announced a tax cut of 1 trillion Indian Rupees (USD 11.5 billion) for the middle class, which should help boost consumption. Second, the Reserve Bank of India lowered the policy rate by 25 basis points to 6.25%, marking the first rate cut in five years.
Zhao noted that another major risk facing India is that it may be affected by Trump's "reciprocal tariff" policy. The good news is that, compared to other major Asian economies, India has a lower dependence on exports to the United States. Most of India's exports are in the service sector, currently accounting for about 10% of India's GDP, significantly higher than the 7% before the pandemic.
In the long run, India will need to open up more industries to attract more foreign direct investment. Once the cyclical growth headwinds begin to diminish and corporate earnings exceed expectations, the Indian stock market may recover. Monetary easing combined with improved fiscal spending should boost economic growth in the coming months. High-frequency indicators have already shown some signs of recovery. Indian stocks have been expensive for a long time. However, high valuations are not overly concerning, as history shows that investors are willing to pay for growth