Deutsche Bank sees India stocks beating S&P 500 as earnings grow

Stocks in India are likely to outperform US peers in the coming quarters, boosted by better economic prospects and stellar earnings growth, according to Deutsche Bank AG.

“Indian macros are firing on all cylinders,” Mayank Khemka, chief investment officer for India at the bank, said in an interview, pointing to economic data ranging from power and fuel demand to auto sales. “When all of this is happening, it has to reflect in corporate performance. From here, the expectations of market returns should be in line with earnings growth, which is likely to be in double digits.”

In comparison, the S&P 500 Index in the US should see some downgrades, said Khemka, who oversees assets worth $2 billion across equities, fixed income and asset-allocation products. “If the US economy slips into recession, India’s outperformance would be bigger.”

A return of foreign investors following a record exodus is supercharging India’s stock market, which has been buoyed during this year’s global equity rout by an unprecedented retail investing boom. Up about 10% over the past one month, the NSE Nifty 50 Index is the top performer among major Asian benchmarks. It has beaten the S&P 500 by about 13 percentage points so far this year.


Benefiting from domestic demand that’s rebounding as the pandemic’s impact wears off, India’s economy is estimated by the International Monetary Fund to grow 7.4% in 2022. That’s more than three times the forecast for the US and more than double the estimate for the world economy.
Deutsche Bank is overweight on Indian banks and financial companies, whose margins are seen improving in an environment of rising interest rates. Firms in the industrials and construction space are also “likely to do well,” Khemka said, while maintaining a neutral stance on tech companies.

Global investors have bought a net $3.2 billion of Indian shares since end-June. That’s after dumping about $33 billion in the previous nine months as concerns over the Federal Reserve’s aggressive tightening boosted the dollar and spurred outflows from emerging-market assets.

“The trend has definitely changed and we don’t expect to see the lows that we saw between October and June,” said Khemka. “For at least the year, we don’t expect such massive selling by foreign investors in local stocks.”


A recent pullback in crude prices has also boosted sentiment toward equities in India, a net oil-importing nation. To be sure, with the Reserve Bank of India’s half-point rate hike last Friday, the central bank’s hawkish stance and inflationary pressures are headwinds.

“Fundamentally, there has been no issues with India,” said Khemka. “Inflation is expected to ease to reasonable levels, growth macros are doing well and company earnings are poised to improve with easing input costs and a pick-up in demand.”

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