As India’s equity and currency markets took the US interest rate hike in their stride, the focus shifted back to domestic factors.
While there may be short-term volatility, India stands out among emerging markets due to strong macro-economic factors and an expected recovery in corporate earnings next year, they added.
According to analysts, future interest rate hikes by the US Fed will be gradual, and there is unlikely to be any major increase in foreign outflows from emerging markets like India since the Fed’s move was highly anticipated.
“The major uncertainty has gone by and the focus will now shift to the fundamentals of India going ahead. While emerging market space as a whole may look less attractive versus the US economy, India is likely to stand out due to reasons like higher economic growth, weakening inflation, positive impact of lower commodity prices and a reforms-oriented government,” said Dipen Shah, senior vice-president and head of private client group research at Kotak Securities.
Analysts expect IT and pharma companies, which are predominantly dependent on US growth, to benefit due to stable demand and a weak rupee. Companies related to roads, railways, defence and mining equipment should also get a boost from increased government spending, which many expect will remain high next year too.
Sectors, including automobiles and NBFCs, should also benefit from a pick-up in consumption and higher payouts next year due to the implementation of the Seventh Pay Commission, they added.
“India’s macroeconomic indicators continue to look attractive and there is growing evidence that the domestic economy is showing signs of pick-up...Given better prospects for growth, we stay overweight on consumer staples and discretionary,” said Neelkanth Mishra , India equity strategist at Credit Suisse.