India's Market Recovery: Hope for Record Highs Ahead
The Indian stock market has faced challenges, struggling to keep up with other emerging markets. Sandeep Neema, the director at PL Asset Management, believes that this trend is poised to change. In a recent interview, he expressed optimism about the market reclaiming its record highs by 2025, driven largely by an anticipated earnings recovery in the latter half of FY26 and into FY27.
Neema pointed out that recent tariff hikes imposed by the US on Indian goods should not lead to a more aggressive stance from the US administration. Instead, he hopes for a diplomatic resolution that could ease the tensions surrounding the tariff war. Such a resolution would be beneficial for the Indian economy, particularly for key exporting sectors that have been affected by these tariffs.
Moreover, the Indian government is actively working on reducing consumer prices through GST reforms. There are expectations that the GST slab rates will be lowered from 12% and 28% to 5% and 18%, respectively, for many products. This reduction could significantly lower prices and is likely to benefit consumers. Neema is optimistic that most companies will pass on these benefits to consumers, while still retaining some margin to cope with rising raw material costs.
Despite the challenges posed by tariffs, Neema remains hopeful about earnings growth. He anticipates a 9-10% growth in FY26, driven by recent reforms, including tax relief and RBI rate cuts. These measures are expected to enhance economic growth in the second half of FY26, leading to a recovery in earnings. This could potentially bring earnings growth into double-digit territory.
When discussing specific sectors, Neema highlighted healthcare as a structural positive in India, driven by the growing needs of its population. Although current valuations in the hospital sector appear stretched, the sector remains attractive for long-term investors.
On the other hand, the IT sector is facing challenges, with lower demand impacting revenue growth and margins. Neema believes that unless there are signs of recovery in demand, the IT sector may not be a viable contrarian investment at this time. In contrast, the consumption sector, a vital driver of the Indian economy, is expected to gradually recover due to ongoing reforms and rate cuts.
In conclusion, while the Indian market has faced hurdles, there is a growing sense of optimism regarding its recovery. With potential improvements in earnings and strategic government reforms, the Indian economy is on the verge of a turnaround.
