November 4, 2025 08:50 AM GMT M Foundation India Equity Strategy Playbook | Asia Pacific Is the Correction Over? With the growth cycle turning, Indian equities appear poised to recover from a steep relative correction since the end of Sep- 24. Key factors driving India's underperformance are reversing: The growth slowdown that started 2H24, coupled with rich relative valuations, appear to be the fundamental drivers. That India does not offer explicit AI-related trades is another reason. The delay in the US ...

Investment Rating - The report suggests that India will likely outperform a global bear market while underperforming in a bull market, indicating a positive long-term investment outlook for India despite global uncertainties [1][3]. Core Insights - Strong macroeconomic fundamentals are highlighted, including improving terms of trade, declining primary deficit, and falling inflation volatility, which are expected to support mid- to high-teens earnings growth annually over the next three to five years [6]. - Technical indicators are favorable, with orderly declines in the market and persistent retail buying, suggesting a structural nature to the current market dynamics [6]. - Key catalysts for India include dovish actions from the Reserve Bank of India (RBI), potential stimulus through GST rate cuts, and a trade deal with the US, while global factors such as US policy and growth rates remain crucial [6]. Summary by Sections Macro Stability - The report emphasizes strong macro stability with a reliable source of domestic risk capital and a dovish RBI, which are expected to support economic growth [6][35]. Corporate Fundamentals - Earnings growth is projected to be robust, with estimates suggesting a compound annual growth rate of 16% through fiscal year 2028, driven by increased private investment and macro stability [94][96]. Valuations - The current price-to-book (P/B) ratio of 3.8 implies a 10-year annual return of 9.6%, indicating improved long-term return prospects [77][78]. Portfolio Strategy - The recommended portfolio strategy favors domestic cyclicals over defensives and external-facing sectors, with an overweight position in financials, consumer discretionary, and industrials [6][100]. Economic Forecasts - GDP growth is forecasted at 6.3% for fiscal year 2025, with a gradual decline in the repo rate expected to support economic activity [94]. Index Target - The base case target for the BSE Sensex is set at 82,000 by December 2025, reflecting a modest upside potential of 2% from current levels [95][96]. Sentiment Indicators - The proprietary sentiment indicator remains in the buy zone, suggesting positive market sentiment despite global uncertainties [6][91]. Institutional Flows - Institutional flows are currently off highs, indicating potential shifts in market dynamics that could impact equity returns in the near term [88]. Risk Factors - While the report identifies several risks, it emphasizes that the overall outlook for India remains positive, supported by strong fundamentals and favorable technicals [6].