On Wednesday, the RBI left interest rates unchanged, citing the necessity for extended policy support to ensure a sustained recovery in the COVID-ravaged Indian economy. The positive impact of a recent cut in excise duties on petrol and diesel notwithstanding, other headwinds on the demand and supply side may build up, the report added. With mixed growth, high inflation and wider twin deficits, we expect India’s risk premium to rise, and the RBI to catch up as it falls behind the curve," economists from Nomura’s Global Markets Research team wrote in their Asia Macro Outlook for 2022.Ĭiting inflation in India as a repeat offender, Nomura’s economists wrote that sticky consumer prices were a key macro concern for the country. "Overall, we do not see the current growth cycle as durable. Nomura’s India Economics Team does not see the prevailing growth cycle in the country as being a durable one and expects the business cycle to peak in the second half of calendar 2022, without a durable capex (capital expenditure) ‘upcycle’. Nomura also highlighted India’s vulnerability to hardening US bond yields and a tighter monetary policy by the Federal Reserve, given the stretched domestic equity valuations.Ī certain degree of reversal of reforms, especially after the recent repealing of farm laws, could also pose hurdles to India’s equity story in 2022, the firm said. "Stretched government finances raises the risk of populism/higher taxes especially ahead of some state elections," was also cited as a red flag by the firm. On the other hand, the key risks or negatives flagged by the foreign firm include the future course of COVID-19 pandemic, especially as India is lagging the region when it comes to rollouts of vaccinations, Nomura said. The low share of equities in household financial assets and consequently sustained retail support would also bode well for Indian shares, while a growing unicorn universe suggests a good pipeline for equity markets, Nomura wrote. Nomura, which is 'neutral' on its Asia Allocation for India said that among the key aspects in favour of the domestic stocks was a high earnings growth market, the size and liquidity (acting as a counterweight to North Asia) and the fact that the country is home to a number of high quality and high growth stocks.Ī relatively lower degree of exposure to global trade also works in favour of Indian equities, the firm said, pointing out that from a long-term investment perspective, the prospect of rising Foreign Direct Investment (FDI) on account of the domestic manufacturing push provided by the Product Linked Incentive scheme would work favourably for the country’s stock markets.
"High earnings growth expectations do not leave much room for disappointment slowing retail trading participation takes one support away from the market sticky core inflation raises the risk of higher policy rates (our team pencils in 100bp of policy rate hikes in 2022 starting April)," the firm said in its report. NEW DELHI: Following a stellar showing in 2021, pricey valuations are the biggest concern surrounding Indian equities, Nomura said in its Asia-Pacific Equity Strategy Outlook for 2022.
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