(Bloomberg) — Indian equities are gaining an edge in Asia as stronger earnings and a nascent return of foreign investors bolster the case for further outperformance.
Profits at roughly two-thirds of BSE 100 companies that have reported results rose 20% from a year earlier in the September quarter, according to Citigroup Inc. That was the fastest growth in at least five quarters and beat estimates, the brokerage said. Consumer staples, steel and financials were among sectors to see earnings upgrades.
The improvement is putting India’s $5.1 trillion market back on investors’ radar after rich valuations, record foreign outflows and limited exposure to the artificial-intelligence trade soured sentiment. Since Oct. 1, the Nifty 50 has risen 6% through Wednesday, even as the MSCI Asia Pacific Index fell 7.5%.
Some strategists see scope for the run of outperformance to extend if earnings upgrades broaden and overseas inflows accelerate.
Earnings have been “reasonably good” at a time when valuations have become less demanding, making India a “pocket of resilience” in the region, said Rajat Agarwal, an Asia strategist at Societe Generale SA.
Selling by global funds is also abating. Overseas investors have been net buyers of local shares for the past three weeks, after withdrawing more than $30 billion this year.
An acceleration in flows would add to the recent momentum, particularly if concerns over the AI trade, along with the Democrats’ strong US midterm showing, prompt a rotation of capital toward laggards such as India.
“There is easing competition for capital for India,” Agarwal said.
Still, risks remain. High oil prices are a key concern for an economy that relies heavily on energy imports, as they threaten to stoke inflation, squeeze profit margins and hurt the rupee, which neared a record low last month. Unless those pressures ease, local shares may struggle to sustain the rebound even if they remain relatively resilient versus other markets.
The pace of earnings upgrades also remains weak. The 12-month forward earnings-per-share estimate for Nifty 50 members rose 1.6% during the ongoing reporting season, compared with more than 5% growth for MSCI’s regional gauge, data compiled by Bloomberg show.
Even so, the improvement in earnings has been broad enough to boost the bullish case for India as fears mount over the crowded AI trade, according to Citi analysts Surendra Goyal and Vijit Jain.
“Concerns on AI infra trade globally have increased, which should bring back the focus on markets like India, with decent growth and reasonable valuations post the correction,” they wrote in a note.
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