India stocks to see slow recovery as Adani indictments weigh, analysts say
By Devayani Sathyan and Anant Chandak
BENGALURU, Nov 27 (Reuters) -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 .BSESN and the Nifty 50 .NSEI 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.
U.S 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 ADEL.NS fell more than 20% after the announcement, while the Sensex dropped 0.5%.
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% from Monday's close to 87,450 by end-2025.
Survey predictions ranged from 64,600, a 19% drop, to 98,500, a 22% 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% from its September life-time peak of 85,978.25 before local retail investors stepped in to push the index up 4% 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% 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 .NSEI index was forecast to gain 4.5% 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% this fiscal year and 6.6% next year, outpacing China's expected growth of 4.8% in 2024 and 4.5% in 2025. In comparison, the U.S. economy is forecasted to grow by 2.7% in 2024 and 2.0% in 2025.
(Other stories from the Reuters Q4 global stock markets poll package)
Reporting by Devayani Sathyan and Anant Chandak; Polling by Veronica Khongwir, Rahul Trivedi and Susobhan Sarkar; Editing by Hari Kishan and Kate Mayberry
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