 "Nomura, Nomura Holdings")
Nomura on Indian equities: After the initial jolt post the 2024 Lok Sabha elections' results, global brokerage Nomura remains 'cautiously optimistic' on the Indian stock markets.
The confidence stems from the Narendra Modi-led NDA government taking charge at the Centre which, Nomura believes, appears to be stable, primarily due to the major number of seats held by the Bharatiya Janata Party (BJP) in the coalition government.
Given this, the Japan-based brokerage maintained its sector stance and portfolio structure, stressing upon a highly selective approach to stock picking. The firm remained optimistic towards domestic sectors, particularly favouring manufacturing and investment themes over consumption.
"Within defensive sectors, we prefer IT Services and Healthcare over Consumption. We hold an overweight (OW) position on Financials, Infrastructure, Oil and Gas, Telecom, and Power, anticipating a buying opportunity amid potential corrections. The outlook extends to Public Sector Undertakings (PSUs), where we maintain a constructive view," Nomura said in its recent note.
Additionally, Nomura expresses positivity towards Capital Goods/Defence, but remains vigilant against potential risks associated with government spending on defence.
Overall, assuming policy continuity, stable macros, and sustained earnings growth, Nomura has maintained its year-end Nifty target of 24,860 (December 2024), based on an unchanged 20x Dec-2025F earnings per share (EPS) valuation.
On the bourses, Indian equities were taken by a storm on June 4 when Lok Sabha election results showed the BJP falling short of a clear majority of 272 seats. It concluded the elections with 240 seats, its lowest seat count since 2014; while the NDA garnered 293 seats. The numbers were, nonetheless, below exit poll predictions of 350-370-seat victory for the NDA.
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The markets saw a massive sell-off in sectors such as industrials, infrastructure, and real estate on the election day, with a rotation towards defensive sectors like FMCG and IT services.
Indian bourses, however, have bounced back robustly since then.
On June 10, the Nifty50 reached a new peak of 23,412, crossing the 23,400 threshold for the first time in its history. Similarly, the Sensex soared to a historic high of 77,079, surpassing the 77,000-mark for the first time. Similarly,
Here are the top factors supporting Nomura’s outlook on Indian equities:
Government appears stable
The current government appears to be stable, primarily due to the major number of seats held by the BJP in the Lok Sabha, forming a strong core of the coalition government with 240 seats. Although concerns arise from the fact that 38 out of the 53 seats are held by partners who recently joined the NDA, the fragmentation of seats among coalition partners means that the withdrawal of support by one party would still leave the government with a majority. Additionally, the NDA benefits from potential support from parties and independents outside the opposition alliance.
No change in portfolio
Analysts at Nomura suggest that investor concerns regarding political stability and policy continuity have diminished since the election outcome.
Domestic institutional investors (DIIs) have remained resilient, with a net purchase of $670 million in equities over the past week, while foreign institutional investors turned net buyers on the last day of the week.
Meanwhile, the foreign institutional investors (FIIs) continued to be net sellers for the week ended June 7, 2024, though they did turn net buyers on the last day of the week.
Nomura, however, expects foreign investor flows to improve with the establishment of policy continuity.
Policy Continuity
The election outcome, influenced by political factors like caste dynamics and alliances, suggests a response more driven by politics than economics.
Nomura expects continuity in economic policies, focusing on macro stability, infrastructure, and manufacturing.
Political commitments like the Universal Civil Code and One Nation One Election might stall, while reforms on labour and farm laws could be delayed. The new cabinet, with over 60 per cent from the previous one, analysts believe, indicates continuity.
Budget Announcement
Analysts anticipate the Union Budget, expected in early July 2024, as the next major event for the Indian stock markets.
"The Budget is likely to highlight the policy direction, which we expect to remain largely unchanged. The government is likely to pursue fiscal consolidation and prioritise investments/capital expenditure," Nomura said in a note.
