Dear Reader,

As the US prepares to elect a new President, equity markets in India are feeling the heat of premium valuations, slowing earnings and selling by foreign portfolio investors. The selling in Indian markets intensified as China unveiled a slew of measures to revive its flagging economy.

But as it turns out, global hedge funds have pared their holdings across the emerging markets, including China and India, this month. They are routing money to the US, reports Reuters citing Goldman Sachs.

Tactical money is moving to the US amid soft inflation, easing interest rates, stable economy and corporate earnings. Therefore, despite a moderation in expectations, aggregate earnings of S&P 500 companies are projected to grow at a decent pace in the next three quarters.

Notably, easing credit conditions and a stable economy are projected to improve earnings breadth of the US stock market. Consensus estimates indicate an improvement in earnings growth rates of companies outside the Magnificent Seven in the S&P 500 index.

“Recent earnings growth has improved, but future expectations are more modest. This is partly due to a sharp decline in growth expectations for the Magnificent Seven. On the other hand, we expect more noticeable improvement for the ‘Magnificent Others’, as a steady economy and moderating inflation boost the fortunes of stocks beyond mega-cap tech,” AllianceBernstein said in a note.

In comparison, the latest data and results season in India indicate a surprising slowdown in earnings and in the domestic economy. Companies in automobiles, retail and consumer goods sectors reported subdued performances and warned about soft demand.

The results of cement and commodity companies are weak. Post-result commentaries from IT services vendors do not indicate a revival in growth rates in the near term. Additionally, recent moves by the Reserve Bank of India (RBI) can slow unsecured lending and slow down non-banking finance companies, a risk highlighted by our Research Team. They had warned in June about how farm loan waivers could hurt SFBs and NBFC-MFIs.

“The post-pandemic surge in pent-up demand has faded,” economists at Nomura said in a note adding “we believe India’s economy has entered a cyclical growth slowdown”.

No surprise then that the latest Moneycontrol Market Poll lists earnings downgrades as the biggest risk for Indian stock markets currently.

Pertinently, the deep protectionist views of the US presidential candidates are making global investors edgy. Analysts fear significant hikes in trade tariffs, spending and changes to immigration policies that can stoke inflation. This can upset calculations of market participants and increase volatility in global stock markets.

Investing insights from our research team

Federal Bank Q2 FY25 – welcoming the new boss with a steady show

MC Pro Diwali 2024 Portfolio: Light up your investing journey in Samvat 2081

Cholamandalam Investment: Best long-term play among asset financiers

Indian Energy Exchange: Earnings stability, reasonable valuations to support stock

Syrma SGS Q2 FY25: Growth at a reasonable price tag

Tracker 

Pro Economic Tracker: Labour participation, auto registration improve, but consumer sentiment falls

What else are we reading? 

Traders, analyse rollover data before making your next move

Will the BRICS succeed in overthrowing the US dollar?

Can labour exports act as India’s trade tonic?

Chart of the Day: Hydro power generation lags for second consecutive year

DLF cashing in on demand for luxury property

Policymakers need a fresh approach on capital gains tax increases (republished from the FT)
Why Punjab’s rice procurement this year faces problems

Undeterred by Opposition attacks, RSS prepares to implement blueprint for massive expansion

Elon Musk and friends are smothering the internet’s truth seekers

Oil's war premium will fade after Israel's strike on Iran

Markets

Risks to Indian equities: Q2 earnings moderation raises growth concerns amid stretched valuations

Tech and Startups

3 out of top 5 Indian IT firms report flat or shrinking operating margins in Q2

Technical Picks: MOTILALOFS, TATAPOWER, HAL, Maruti.

R Sree Ram
Moneycontrol Pro