India stocks to see slow recovery as Adani indictments weigh, say analysts

India's equity markets will take time to recover from their recent sell-off because they remain overvalued, with last week's Adani indictments only adding to the pain, according to equity analysts in a Reuters poll.

Turbocharged by a new crop of optimistic young investors with access to financial markets, India's benchmark BSE index and the Nifty 50 have both posted yearly gains in all but one year since 2012.

But with the economy showing signs of a slowdown and top corporates posting lacklustre earnings, cracks have appeared in one of the world's most overvalued stock markets.

US prosecutors' indictment on Nov 20 of Gautam Adani, the billionaire chair of Indian conglomerate Adani Group and one of the world's richest people, over an alleged multibillion-dollar bribery and fraud scheme has only added to the concerns.

Adani Enterprises fell more than 20 per cent after the announcement, while the Sensex dropped 0.5 per cent.

The median view of 22 equity strategists collected from Nov 18 to 26 showed the Sensex at 83,900 by mid-2025, suggesting the index will fail to reclaim its life-time high over the next six months.

Still, the poll said the index was expected to rise 9.2 per cent from Monday's close to 87,450 by end-2025.

Survey predictions ranged from 64,600, a 19 per cent drop, to 98,500, a 22 per cent rise by end-2025.

"While India may remain the fastest-growing major economy in the year, we think elevated valuations, (and) slower growth alongside a challenging external environment will exert downward pressure on its still-highly valued stock market," noted Shivaan Tandon, markets economist at Capital Economics.

Global investors have led the sell-off in the past two months, withdrawing $15 billion from the Indian stock market, aid the uncertainty over the economy and earnings.

The BSE Sensex dropped nearly 11 per cent from its September life-time peak of 85,978.25 before local retail investors stepped in to push the index up 4 per cent from those lows.

With a price-to-earnings ratio of 23.87, the BSE is still considered expensive compared to its peers.

However, when asked if another correction - a decline of 10 per cent or more - in the Indian equity market was likely early next year, only nine of the 20 analysts who responded to that question said it was. Eleven said another correction was unlikely.

"The market focus has shifted back to fundamentals, with an emphasis on earnings. The Q2 FY25 earnings season posted a relatively muted set of numbers and choppy price reactions were visible during the quarter. All eyes are now on the earning recovery in H2 FY25," said Neeraj Chadawar, head of research at Axis Securities.

"Nonetheless, we continue to believe in its (Indian equity market) long-term growth story thanks to the economic momentum it is enjoying."

The Nifty 50 index was forecast to gain 4.5 per cent from Monday's close of 24,221.90 to 25,300 by mid-2025 and reach 26,500 by end-2025, the poll showed.

Asia's third-largest economy is projected to grow by 6.8 per cent this fiscal year and 6.6 per cent next year, outpacing China's expected growth of 4.8 per cent in 2024 and 4.5 per cent in 2025. In comparison, the US economy is forecasted to grow by 2.7 per cent in 2024 and 2.0 per cent in 2025.