Nifty Index Hits Record Highs as Real Estate and Financials Lead Gains
New Delhi, India – The Nifty index has reached an all-time high for the fourth consecutive week, climbing 2% week-on-week (w/w). This surge was driven by significant gains in the real estate and financial sectors, which saw increases of 4-6%, according to a report by Goldman Sachs.
However, not all sectors performed well. The Information Technology (IT) and pharmaceutical sectors lagged, dropping by 2-3%. Despite this, the Nifty index has surged by 17% year-to-date (YTD), with about 60% of BSE200 stocks trading at 52-week highs. This is still below previous peaks where 75-90% of stocks reached their yearly highs.
Interestingly, 40% of MSCI India stocks have underperformed the index this year, indicating that some areas are lagging even as the market rallies. The valuation of MSCI India has soared to a peak of 24.6x next twelve months (NTM) price-to-earnings (P/E), standing 2.4 standard deviations above the 10-year average. This valuation premium is notable, with MSCI India’s premium to MSCI Asia Pacific ex-Japan (MXAPJ) standing at around 90%, a significant rise from the five-year average of 54%.
While mid and small-cap indices are trading at peak levels, large-cap stocks remain below their historical valuation peaks. Leading sectors include financials, energy, and domestic cyclicals like materials, consumer discretionary, and industrials, which are still trading below their peak valuation levels. Over 20% of MSCI India stocks are trading at NTM P/E below the 70th percentile relative to their historical performance. Particularly, stocks in energy, financials, telecoms, consumer discretionary, and industrials have 15-60% trading below this valuation threshold, offering opportunities for value investors.
In terms of investment flows, Foreign Institutional Investors (FIIs) bought USD 0.3 billion in the past week, bringing the total inflows for the year to USD 9 billion. Domestic Institutional Investors (DIIs) were more active, purchasing USD 0.5 billion worth of shares in the same period, with YTD inflows amounting to USD 39 billion.
As part of its 13th annual GS India Chief Investment Officer (CIO) tour, Goldman Sachs analysts met with several corporate leaders across industrials, financials, and healthcare sectors. Insights from these meetings further underscore the strength of select sectors despite broader market challenges. Goldman Sachs noted that over 20% of MSCI India stocks are trading at NTM P/E below the 70th percentile of their historical averages. In particular, energy, financials, telecoms, consumer discretionary, and industrials offer value picks, with 15-60% of their stocks trading at lower-than-usual valuations.
The bank also screened 20 “buy-rated” stocks that have underperformed the MSCI India Index this year and are currently trading at reasonable valuations relative to their own history. NIFTY rose by 2% following the Federal Open Market Committee (FOMC) decision to lower the Fed funds rate. Historically, India’s equity markets have performed well in the three to six months following the first rate cut in a non-recessionary environment. However, Goldman Sachs noted that the gains were relatively modest compared to other rate-sensitive markets in the Asia-Pacific region. The sectors that have historically benefited from non-recessionary rate cuts include consumer discretionary, industrials, and IT.
Doubts Revealed
Nifty Index -: The Nifty Index is a stock market index in India that shows how the top 50 companies listed on the National Stock Exchange (NSE) are performing.
Real Estate -: Real estate refers to property consisting of land or buildings. In this context, it means companies that deal with buying, selling, or renting properties.
Financials -: Financials are companies that provide financial services like banks, insurance companies, and investment firms.
MSCI India -: MSCI India is a stock market index that measures the performance of large and mid-cap companies in India. It is used by investors to understand how the Indian stock market is doing.
Valuations -: Valuations are estimates of how much a company or its stock is worth. High valuations mean that the stocks are considered expensive.
NTM P/E -: NTM P/E stands for Next Twelve Months Price-to-Earnings ratio. It is a way to measure how expensive a stock is based on its expected earnings over the next year.
FIIs -: FIIs are Foreign Institutional Investors. These are investors or investment companies from outside India that invest in the Indian stock market.
DIIs -: DIIs are Domestic Institutional Investors. These are investment companies within India that invest in the Indian stock market.
Goldman Sachs -: Goldman Sachs is a big global investment bank and financial services company. They provide advice and manage investments for clients.
Fed rate cut -: The Fed rate cut refers to the U.S. Federal Reserve lowering interest rates. This can affect global markets, including India’s, by making borrowing cheaper and encouraging investment.
Consumer discretionary -: Consumer discretionary refers to goods and services that people buy with their extra money, like cars, electronics, and vacations. These are not essential items.
Industrials -: Industrials are companies that produce goods used in construction and manufacturing, like machinery, tools, and equipment.
IT -: IT stands for Information Technology. It includes companies that work with computers, software, and the internet.