Indian stock market set for a multi-year rally

The global investment bank, HSBC, believes that the Indian stock market is set for a multi-year rally, adding to gains made last year.  In 2014, India was the best performing stock market in the world.

“We are overweight on India and we believe that it is set for a multi-year rally as reform momentum combines with an improving macro picture,” HSBC stated in a recent report.  The global investment bank concluded that corporate earnings will drive the next leg of the recovery as the economy strengthens, leading to better demand, improved asset utilization and higher earnings.

“We expect some monetary easing ahead as inflation continues to slide, which should further  boost equities,” the report added.  Consensus forecasts are for 16.7 percent earnings growth in 2015, “which looks achievable, given the reform-driven recovery in the domestic economy expected in 2015.”

However, the recent rally in equities has pushed up valuations to a high level and, therefore, selected investment in high-quality stocks is important here, said the HSBC report.

HSBC also expects that the Indian Rupee will be relatively resilient against the USD in 2015.  It sees currency appreciation as a function of positive policy direction and better macro  fundamentals.  This should benefit domestic importers, such as autos, and safeguard the interest of foreign investors.