The nifty index reached an all-time high for the fourth consecutive week, climbing 2 per cent week-on-week (w/w) as real estate and financials led the market gains with 4-6 per cent increases, according to a report released by Goldman Sachs.
Meanwhile, the Information Technology (IT) and pharmaceutical sectors lagged, dropping by 2-3 per cent.
The report highlighted that nifty has surged by 17 per cent year-to-date (YTD), while about 60 per cent of BSE200 stocks are trading at 52-week highs.
However, this figure remains below previous peaks, where 75-90 per cent of stocks reached their yearly highs. Interestingly, 40 per cent of MSCI India stocks have underperformed the index this year, suggesting pockets of laggards even amidst a market rally.
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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 (sd) above the 10-year average.
This valuation premium is notable, with MSCI India’s premium to MXAPJ (MSCI Asia Pacific ex-Japan) standing at around 90 per cent, a significant rise from the five-year average of 54 per cent. While mid and small-cap indices are trading at peak levels, large-cap stocks remain below their historical valuation peaks.
The sectors leading the charge include financials, energy, and domestic cyclicals like materials, consumer discretionary, and industrials, which are still trading below their peak valuation levels.
Meanwhile, over 20 per cent 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 per cent 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 per cent 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 per cent 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 per cent 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.
