Invesco: Positive and Constructive Outlook on Indian Stocks, Valuation Decline Makes them More Attractive.

Recently, Mike Shiao, Chief Investment Officer of Schroders (Asia excluding Japan), and Investment Director Chandrashekhar Sambhshivan have expressed their views that due to consistent and stable policies, resilient macroeconomics, ample domestic fund inflows, and strong economic growth, companies in India are expected to achieve double-digit profit growth. Therefore, Schroders holds a positive and constructive view on Indian stocks. Schroders believes that the current valuations make stocks more attractive for investors seeking opportunities in the Indian market. In recent years, Indian stocks have consistently outperformed most emerging market countries, with all sectors showing positive performance. However, after a recent market correction, the valuations of Indian stocks have fallen slightly, partly due to profit-taking, geopolitical changes in the Middle East, and the upcoming US presidential election. From a valuation perspective, Indian stocks (represented by the MSCI India Index) are currently valued below one standard deviation of the past five years. Some mid-cap stocks with strong fundamentals and higher earnings visibility have also experienced corrections, making current valuations more reasonable than several weeks ago. Schroders points out that the earnings per share growth of Indian companies is strong, significantly outperforming most developed economies and some emerging markets such as Thailand, Indonesia, and Brazil. The current earnings announcements season in India has been solid so far. In the 2024 financial year, the return on equity (RoE) of the MSCI India Index reached 16.9%, a 13-year high, indicating increased investor returns. With Indian companies transitioning from low double-digit RoE to mid-double-digit RoE in recent years, higher and more sustainable RoE is expected in the future. In addition, Indian companies have effectively managed their balance sheets over the past decade, maintaining low leverage and benefiting from consumption-driven growth. The debt ratio (total debt divided by total assets) of the MSCI India Index has significantly improved, decreasing from 28% in 2019 to 21.2% in the third quarter of 2024. The ratio of free cash flow to sales has also increased significantly, now exceeding the long-term average level. Schroders expects that corporate balance sheets will continue to strengthen. In terms of liquidity, the Indian stock market continues to have strong liquidity, benefiting from stable domestic liquidity and inflows of foreign institutional funds. These trends reflect the high level of confidence of Indian citizens in their economy and market, and this positive structural fund flow is expected to continue. Schroders states that the valuations of Indian stocks are falling to more attractive levels. Considering the strong fundamentals and macroeconomic stability that can support the valuation of Indian stocks, there is still room for upward valuation in the future.