Nifty Valuations Normalize Amid Promising Long-term Growth Outlook

Nifty's valuations have returned to their 5-year and 10-year averages after a market correction, with a positive long-term outlook on Indian equities. HSBC Mutual Fund's report highlights expected growth driven by infrastructure, manufacturing, and private investments despite short-term challenges.

After a recent market correction, Nifty's valuations have returned to levels consistent with its 5-year and 10-year averages, according to a report released by HSBC Mutual Fund. Despite short-term hurdles, the report maintains an optimistic outlook on Indian equities, driven by robust medium-term growth potential.

The report highlights that Nifty valuations align with historical averages and expresses confidence in Indian equities, emphasizing a strong medium-term growth trajectory. While acknowledging a temporary slowdown in India's economic momentum, it underscores a robust long-term outlook, buoyed by a prospective rise in India's investment cycle.

Government focus on infrastructure and manufacturing is poised to drive economic growth, complemented by anticipated private sector investments. The report notes potential recovery in the real estate sector as an economic expansion catalyst, projecting growth in private investments across sectors like renewable energy, technology localization, and global supply chain integration.

The report adjusts Nifty's consensus EPS estimate for CY25, noting a 2 per cent reduction (YoY) in February following the earnings season. Due to market corrections, valuations have further moderated, with Nifty trading at 18.1x 1-year forward PE, marking a 7 per cent discount to its 5-year average and aligning with its 10-year average.

The report indicates that valuations in the Midcap and Smallcap sectors have also moderated after corrections in early 2023. While short-term uncertainties persist, HSBC Mutual Fund asserts India's sustained long-term growth potential, driven by policy support, private sector participation, and structural industry improvements. (ANI)

(With inputs from agencies.)