According to Rajiv Batra, Head of India, ASEAN, APAC, Ex-Japan/China Equity Strategy at JPMorgan, the current wave of initial public offerings (IPOs) and other primary market activities is depleting liquidity from the small and midcap sectors in India. Batra noted that while this might lead to a temporary cooling-off in these spaces, the situation also presents a potential opportunity for first-time and foreign investors to enter the market.
During an interview with CNBC-TV18, Batra discussed how market corrections, especially post-COVID-19, have been shorter and less severe. He encouraged retail investors not to chase rebounds, while stating that corrections provide ideal entry points for new and foreign investors who missed earlier rallies in the small and midcap sectors.
Batra highlighted India's significant outperformance in the global market, rallying nearly 660% over the past two decades compared to the U.S.'s 440%. He attributed this to India's strong earnings potential. However, he also acknowledged that the June quarter results were lackluster, and the upcoming September quarter might also underwhelm. Despite this, he expects earnings growth to rebound from the third quarter of FY25 onward.
JPMorgan forecasts a 12-15% earnings growth for Indian equities in FY25, with an uptick likely starting from Q3FY25. The central government's capital expenditure and a revival in the rural economy are seen as key contributors to this recovery. Batra also noted that the worst earnings downturn seems to have passed, based on the poor June quarter results.
Regarding the midcap sector, 52 out of 89 stocks experienced earnings downgrades in Q1FY25, while in the small-cap space, 40 out of 79 stocks faced downgrades during the same period. Despite these declines, Batra remains optimistic about the long-term growth prospects for India Inc.
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