Money managers are betting Indian banking and consumption stocks have further to run this year, benefiting from the central banks aggressive policy rate cuts to lift economic growth.Asset managers, including BlackRock Inc., Aberdeen Group Plc and Smartsun Capital Pte.
have started aligning portfolios on expectations rate cuts will boost bank profits by lowering what they have to pay on deposits, while consumer companies earnings will improve as customers' take out loans and spend.The shift signals monetary policy is shaping to be the key driver of Indias $5.4 trillion equity market, which has struggled compared to some of its peers this year due to concerns over corporate earnings and rich valuations.The macro backdrop for many sectors in India is going to improve over the next 12 months largely due to the central banks easing, said Prashant Periwal, a portfolio manager for emerging markets equities at BlackRock.
The more domestic sectors such as financials and discretionary consumption are likely to do better and that is how we kind of are positioning the portfolio.BloombergLive EventsPeriwals fund holds lenders such as HDFC Bank Ltd., ICICI Bank Ltd.
and Axis Bank Ltd., which have all surged at least 10% this year, compared with an 8% rise in the benchmark NSE Nifty 50 Index.The Nifty Bank Index hit a fresh record on July 1 after gaining for four straight months, while the NSE Nifty India Consumption Index has advanced 16% since its March low, marginally outperforming the broader gauge.
Upbeat first-quarter business updates by companies such as pizzamaker Jubilant Foodworks Ltd.
and jeweler Kalyan Jewellers India Ltd.
signal room for more gains.
Most of the credit for the rally goes to the Reserve Bank of India it has injected more than $100 billion of liquidity into the market this year, and its 50 basis points interest-rate cut last month came as a surprise to the market.RBIs easing is helping bank stocks to outperform and other rate sensitives will also come around to participate in the rally, said Sumeet Rohra, a fund manager at Smartsun.
The easing lowers the cost of funds and boosts earnings per share and return on investment which overall leads to rerating of valuations.Indias stock market remains expensive.
The broader equity benchmark trades at about 21 times of its one-year forward consensus earnings estimate, compared with about 13 times for the MSCI Emerging Markets Index, according to data compiled by Bloomberg.
A shift in RBIs policy stance to neutral also indicates the room for future rate cuts may be limited.Read More: Indias $5.4 Trillion Stock Market Is Slowly Losing Its EdgeBut historical data supports the sense of optimism.
The last two times the RBI slashed the rates by half-a-percentage point, in April 2012 and September 2015, the banking gauge beat the benchmark index over the subsequent 12 months.
After a 75- basis-points cut during the pandemic in March 2020 both the gauges gave similar gains.
The RBIs measures are steps in the right direction to boost growth, which could be reflected on the ground in the second half of the year, said Rita Tahilramani, a Singapore-based investment director at Aberdeen.
We are taking the opportunity in this correction to buy stocks across sectors, she said.