India having mini goldilocks moment, to embrace Amritkal: Motilal Oswal

Motilal Oswal's (MOSL) latest India strategy report suggests that India's capital markets are on the cusp of embracing a golden era, termed as Amritkaal. MOSL predicts that by the end of FY2024, India is poised to achieve a GDP of $3.6 trillion with an underlying growth rate exceeding 7.6 percent.

According to analysts at MOSL, India is currently experiencing a "mini-Goldilocks moment," characterized by favorable economic conditions where the economy isn't overheated with high inflation nor sluggish. This phase is marked by robust macroeconomic indicators, strong corporate earnings, stabilized interest rates, moderate inflation, and sustained policy momentum.

Furthermore, this optimistic scenario is bolstered by healthy capital flows. The number of Demat accounts has surged from 36 million in March 2019 to 151 million in March 2024. Alongside, cumulative domestic equity inflows have reached $92.7 billion over the past five years, signaling a significant uptrend.

According to the report, FY2024 witnessed widespread growth, with every index and sector recording positive returns. The report highlights that it was particularly favorable for small and mid-cap stocks, as evidenced by the substantial outperformance of both the Nifty Midcap 100 and the Nifty Smallcap 100 over the Nifty-50, by 31 percent and 41 percent, respectively.

In FY2024, notable increases were observed across various sectors: Real Estate surged by 133 percent, followed by PSU Banks at 89 percent, Capital Goods at 77 percent, Auto at 75 percent, Energy at 71 percent, Healthcare at 58 percent, Metals at 50 percent, Technology at 22 percent, FMCG at 18 percent, and Private Banks at 14 percent.

Factors driving intermittent volatility

The report expresses confidence in India's growth trajectory, although MOSL anticipates occasional fluctuations influenced by significant events like the General Elections, high valuations in mid- and small-cap sectors, and potential global macroeconomic shifts.

India currently presents an unprecedented blend of scale and economic expansion. Analysts at Motilal Oswal posit that domestic cyclical trends, including the "financialization of savings," resurgence in private investment, increasing discretionary spending, a robust real estate market, and extensive advancements in digital and physical infrastructure, will underpin India's growth narrative in the medium term.

On the other hand, brokerage firm Jefferies, in a report which released last year in August, raised doubts about the 'Goldilocks position' of Indian equities as crude prices surge, China shows signs of progress, consumer inflation rises, and yields climb. Additionally, with foreign portfolio investors shifting to net selling and India trailing behind the MSCI Emerging Markets index over the past month, the near-term outlook seems bleak.

Jefferies commented that India may face near-term economic hurdles due to the escalation of food prices and the mounting expenses associated with fuel.