Jefferies: India’s Goldilocks position getting questioned: Jefferies

Jefferies: India’s Goldilocks position getting questioned: Jefferies

Mumbai: Jefferies said the ‘Goldilocks position’ for Indian equities is getting questioned with crude rallying, China gaining some traction, rising consumer inflation and yields moving up. With foreign portfolio investors turning net sellers and India underperforming the MSCI Emerging Markets index in the last one month, the near-term appears weak.

In a Goldilocks situation, an economy sees a mix of steady growth and low inflation. India’s economy has been seen to be stable in an uncertain global environment in the past few months.

Jefferies said India’s near-term economic outlook could see challenges because of rising food prices and increasing fuel costs.

“The June ’23 CPI was up 56bps to 4.81% while consensus estimate for July 23 is 6.5% above RBI’s comfort zone as food inflation, particularly in volatile veggie prices, has likely soared,” said Jefferies’ strategists in a client note. “Moreover, a rally in crude oil prices will also reduce the probability of a cut in auto fuel prices in the near term.”

In July, investment bank UBS said many investors are asking if the ‘Goldilocks phase’ in India can sustain when the global growth momentum appears to be stalling.

The Nifty is up 15.8% from its 2023 lows in late March in a record-breaking rally that took the index to near 20,000-levels. The index on Wednesday closed at 19,632.55, up 0.3%, after falling as much as 0.5% earlier in the trading session.

Jefferies said the Nifty, after the recent rally, is trading at an estimated Price to Earnings (PE) ratio of 19 times, about 11% above its 10-year average. The brokerage said its yield-gap measure (10-year bond yields – 1/Nifty PE) is at 193 basis points, 62 points above average pointing towards stretched valuation.

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