India’s Large-Cap Stocks Poised for Rebound Amid Foreign Investor Sentiment Shift
India’s large-cap stocks are poised to rebound as foreign investors turn net buyers of Indian equities for a fourth consecutive week, with Goldman Sachs Group Inc., Jefferies Financial Group Inc., and Societe Generale SA expecting a shift in sentiment to benefit large stocks.
Foreign Flows Boost Large-Cap Sentiment
Goldman strategists led by Amorita Goel believe that as foreign sentiment improves, there could be a rotation back into large caps, citing valuations for large caps as more palatable and shallower earnings cuts than mid-caps in the first half of the year.
Large caps have borne the brunt of the selloff and are now trading at a 25% discount to their smaller peers, compared with the five-year average of 6%, according to data compiled by Bloomberg.
Key Drivers of Large-Cap Rebound
The NSE Nifty 50 Index, which comprises large-cap stocks, has declined about 7% this year, whereas the Nifty Smallcap 250 gauge is up almost 9%. A concentration of attractive new themes like data centers and inflows from domestic institutions fueled the outperformance of small stocks.
Market Impact and Details
- Large-cap earnings growth may accelerate to 14%-15% annually over fiscal 2026-2028, from about 8% in the preceding two years, narrowing the gap with mid caps whose earnings have grown at an annualized rate of about 18% over the same period, according to Jefferies.
- Expected return on equity, a measure of how much profit a firm can generate from investors’ equity, is higher for larger firms than for smaller ones.
- Banks will be key to any rebound in India’s large-cap stocks, accounting for more than a third of the Nifty 50 Index. Overseas funds bought about $1.5 billion of banking and financial-services shares in the two weeks through June 30, after selling more than $12 billion of the sector between January and May, according to National Securities Depository Ltd. data.
Key Takeaways
- Foreign investors are turning net buyers of Indian equities, boosting sentiment for large-cap stocks.
- Large caps have shallower earnings cuts than mid-caps and provide better earnings visibility.
- Banks are expected to play a key role in any rebound in India’s large-cap stocks.
FAQs
What are the key drivers of the large-cap rebound?
The key drivers of the large-cap rebound include a shift in foreign sentiment, attractive valuations, and shallower earnings cuts than mid-caps.
Which large-cap stocks are reasonably valued?
Goldman cited HDFC Bank Ltd., Eternal Ltd., Power Grid Corp. of India, and InterGlobe Aviation Ltd. as among the large-cap stocks that are reasonably valued and could benefit from the turning foreign sentiment.
What role will banks play in the large-cap rebound?
Banks will be key to any rebound in India’s large-cap stocks, accounting for more than a third of the Nifty 50 Index.
Conclusion
India’s large-cap stocks are poised to rebound as foreign investors turn net buyers of Indian equities, with Goldman Sachs Group Inc., Jefferies Financial Group Inc., and Societe Generale SA expecting a shift in sentiment to benefit large stocks. Investors should consider large-cap stocks with attractive valuations and shallower earnings cuts than mid-caps, with banks expected to play a key role in any rebound.
