After a recent market correction, HSBC Mutual Fund’s report indicates that Nifty’s valuations have now returned to levels that are in line with its 5-year and 10-year averages. Despite facing short-term challenges, the report maintains a positive outlook on Indian equities, citing a strong medium-term growth potential. It states, “Nifty valuations are now in-line with its 5/10-year average. We remain constructive on Indian equities supported by the more robust medium-term growth outlook.”
The report acknowledges a temporary slowdown in India’s economic momentum but emphasizes that the long-term outlook remains robust. One of the key factors supporting this optimism is the expected rise in India’s investment cycle. The government’s continued focus on infrastructure and manufacturing investments is likely to drive economic growth. Additionally, private sector investments are expected to pick up, further boosting economic activity. The report also highlights a recovery in the real estate sector, which could contribute to economic expansion.
Predictions in the report suggest that private investments will rise in key areas such as renewable energy, localization of technology components, and India’s integration into global supply chains. These factors could potentially accelerate India’s economic growth in the coming years. The report also mentions that Nifty consensus EPS estimate for CY25 have been reduced by about 2% (YoY) in February following the conclusion of the earnings season.
However, due to the sharp market correction, valuations have further moderated, with Nifty now trading at 18.1x 1-year forward PE. This represents a 7% discount to its 5-year average and is in line with its 10-year average. The report also notes that valuations in the midcap and smallcap space have also moderated following the recent correction.
Overall, despite short-term uncertainties, HSBC Mutual Fund believes that India’s long-term growth story remains intact. Strong policy support, increasing private sector participation, and structural improvements in key industries are expected to keep the country on a steady growth path. The report was published on March 8, 2025.
