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Investment Strategy I 7 October 2024

India Market Outlook

Shifting growth inflation dynamics

Indian risk assets hit new all-time highs in

Q3, as risk sentiment was boosted by US
Fed rate cuts, falling domestic bond yields,
easing domestic inflation and robust
foreign investor inflows

We see increased risks of a pull-back in

domestic equities in the near-term given
India’s stretched valuations to major
regional peers, normalisation of economic
and corporate earnings growth and
significant event risks with elections in the
US and key Indian states. The escalation
of Middle East tensions into a regional
conflict is a key risk to monitor.

We continue to prefer a diversified asset-

allocation, with (i) an overweight on large-
cap equities, (ii) an overweight on
medium- and long-maturity bonds, (iii)
owning gold as a diversifier, and (iv) cash
as source of dry powder for future
opportunities

 Are we closer to an RBI Impact of RBI’s policy Sector strategy and

policy pivot? easing on Indian assets Opportunistic allocations

Important disclosures can be found in the Disclosures Appendix.

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Contents

Strategy
01 Investment strategy: Shifting growth inflation dynamics

Foundation: Our tactical asset allocation

03

06

Macro overview at a glance

02 At a glance 07

Asset classes
03 Bonds

Equity
08

09

Equity sector views 10

Global Equities 11

FX and commodities 12

Performance Review
04 Foundation: Asset allocation summary

Performance of our calls

13

14

Market performance summary 15

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1 Investment strategy and key themes

Shifting growth inflation dynamics

Our top preferences • Indian risk assets hit new all-time highs in Q3, as risk sentiment was boosted by
US Fed rate cuts, falling domestic bond yields, easing domestic inflation and robust
Foundation Allocations
foreign investor inflows.
• Prefer a diversified asset
• We see increased risks of a pull-back in domestic equities in the near-term given
allocation
India’s stretched valuations to major regional peers, normalisation of economic and
• In equities: Large-cap equities corporate earnings growth and significant event risks with elections in the US and
• In bonds: Medium-and long- key Indian states. The escalation of Middle East tensions into a regional conflict is
maturity bonds a key risk to monitor.

• We continue to prefer a diversified asset-allocation, with (i) an overweight on large-

Opportunistic Allocations cap equities, (ii) an overweight on medium- and long-maturity bonds, (iii) owning
• Investment sectors – gold as a diversifier, and (iv) cash as source of dry powder for future opportunities.
Manufacturing Focus shifts on fundamentals
Infrastructure
We believe the following macro and market trends are likely to influence domestic
• High-quality corporate bonds
assets in Q4 2024: 1) Domestic growth and earnings trajectory – Lacklustre
Sector overweights economic and corporate earnings growth in Q1, high-frequency indicators pointing to
the slowdown extending into Q2 and high real rates amid stretched valuations leaves
• Industrials
very little room for disappointment on earnings; 2) The RBI’s policy stance – the
• Financials recent slowdown in economic indicators and sustained easing of non-food inflation
• Consumer Staples along with new members joining the MPC, could recalibrate RBI’s policy stance to be
more growth supportive; 3) Rotation to China – low valuations and return of ‘animal
FX views spirits’ in Chinese equities due to a decisive turn in policy could renew foreign investor
interest. For now, we see limited impact on Indian markets given modest inflows
• Bullish bias on USD (3-month) YTD2024 and foreign investor positioning of Indian markets close to decadal lows; 4)
• Mildly bearish bias on INR (12- Middle East tensions - the escalation into a major regional conflict, remains a key
month) risk for global supply-chain, commodity prices and financial markets.

India Market Outlook 3

Fig. 1 Historically, bonds have delivered consistent performance around the RBI’s easing cycle
Average change in domestic bond yields (bps) and asset class performance around the first rate cut by the RBI since 2002

Source: Bloomberg, Standard Chartered. Performance analysis for the past 5 RBI policy easing cycles (2002, 2008, 2012, 2015 and 2019)

Our preference for corporate bonds has not performed well, as

Slowing growth urge policy recalibration
AAA-rated bonds have trailed sovereign bonds with liquid
In our H2 Outlook, we argued that the RBI could remain on hold government bonds adjusting to lower interest rate scenario
for the rest of 2024. The view was underpinned by resilient quicker than corporate bonds. However, history indicates the
growth momentum affording the monetary policy committee fall in AAA-rated bond yields following the first RBI rate cut see
(MPC) the policy space to deal with last mile disinflation. Since fig 1, outpaces government bond yield fall by a significant
then, non-food inflation remains below 4%, while the outlook on margin. Further, the current corporate bond spreads (86bps
food prices has improved on surplus monsoon and positive over government bonds) are at a cyclical high offering investors
Kharif sowing. On the growth front, most high frequency to lock-in attractive ‘carry’ yields, making corporate bonds
indicators – GST collections, manufacturing and services PMI, attractive from both, absolute and relative return.
credit growth, and industrial production, points to growth
Equities – a balanced view
slowing down further in Q2 2025 after a lacklustre Q1 2025.
This led to more MPC members dissenting in August policy. Declining bond yields and improving global growth outlook
The change in the composition of MPC along with the shifts in while positive for equites is counterbalanced by stretched
the growth-inflation dynamics since the last policy, could valuation premiums and normalizing growth and corporate
necessitate a more nuanced policy intervention than a hawkish earnings. Broader markets are trading at cycle-high premiums
inflation focus. Though, we expect the RBI to stay on hold in to large-cap equities, buoyed by excessive inflows from retail
October policy meeting, the odds of a pre-emptive shift in investors and mutual funds, raising the odds of a pull-back.
monetary policy has increased, with rate cuts of 50-75 bps over Given the risk-reward, we are neutral on Equities, in our
the next 12 months. However, the current rate easing cycle is Foundation allocations, with an OW on large-cap equities over
likely to be shallow given the low starting point of policy rates mid-and-small cap equities, given better margin of safety in
and surplus system liquidity. terms of earnings and valuations.

Bonds – add to the recent rebound in yields Cash yields at risk

Historically, domestic bond yields have trended lower around Yields on cash have been rewarding over the past two years.
the start of the RBI’s easing cycle, like the current cycle. However, this period is now coming to an end. Historically, the
Extension of maturity in our Foundation allocations through an start of the RBI easing cycle leads to a sharp decline in cash
overweight on medium-and-long-maturity bonds has benefitted yields over 6-12 months, increasing reinvestment risks. This is
investors as sovereign yields have fallen 35-55 bps across the reason we continue to expect bonds to outperform cash.
maturities. The benchmark 10-year IGB yield fell to 6.72% in
Can gold keep rising?
late September, before rising on escalating middle east
tensions and the government sticking to its borrowing plan for In our view, gold prices have room to rise further. Declining
H2 FY 2025. We see scope for yields to decline further, bond yields, central bank purchases and strong domestic
supporting our OW on medium-and-long-maturity bonds, demand during festive season amid a decline in import duty,
though the relative outperformance over short-maturity bonds are key supportive factors. We prefer gold as a solid core
is likely to narrow. We expect the 10-year IGB yield to trade in holding and a key portfolio hedge against escalating
the range 6.50%-6.75% over the next 12-months. geopolitical tensions, commodity price shocks or a global
growth slowdown.

India Market Outlook 4

Equity sectors & Style: Rotation in play declining bond yields, investors tend to prefer the safety of
companies with strong balance sheets and resilient and high-
Heading into the first rate cut, Indian equities on an average fell
quality earnings growth. This rotation drives the
6% over the trailing 12-month period, attributable to slower
outperformance of growth-style equities.
growth on revenue and corporate profitability. The performance
in the immediate 1-3 month post the first rate cut is weak as Opportunistic ideas: prefer a barbell approach
growth challenges linger on. However, performance recovers We continue to prefer domestic cyclicals given our view of
over the following 6-12 month, as financial conditions ease, normalizing, but still above peers economic growth. We retain
economic activity stabilizes, and profit outlook improves, albeit our Overweight on Industrials. While, the sector trades at
with a significant divergence across sectors and investing style. expensive valuations, the sector’s earnings growth remains

Cyclicals underperform. The impact of deteriorating growth ahead of its sector peers. Industrial sector fundamentals remain
conditions is more pronounced in the performance of cyclical strong on government focus on improving domestic
sectors. Financials, Industrials Materials, Utilities are the infrastructure, supported by past policy reforms and a gradual
weakest over the 12-month period before the first rate cut, with pick-up in private investment.
the underperformance continuing over the 6–12-month period We retain our Overweight on Financials, given its strong linkage
following the first rate cut, except for Financials, which likely is
to domestic growth, healthy earnings outlook and reasonable
boosted by pick-up in loan disbursal and lower borrowing costs.valuations compared to other sectors. A falling interest scenario
Consumption sectors offer resilience. Both Staples and could impact interest margins, but this could be offset by a pick-
Discretionary sectors deliver strong positive returns over the up in loan disbursal as borrowing costs moderate.
12-month period before the first rate cut. Over the 6–12-month We balance our preference for domestic cyclicals through a
period following the first rate cut, Staples continue to defensive overlay with an Overweight on Consumer staples.
outperform given lower sensitivity to economic growth The sector has outperformed peers since our upgrade at the
conditions while Discretionary sector comes under pressure, start of H2 2024. While the revenue and growth outlook for the
given increased uncertainty on income and employment. sector lags peers, we like the sector for its defensive nature in
Defensives performance mixed. On an average, they have a period of growth normalization and policy easing. Further, an
underperformed over the 12-month period before and after the improvement in rural income and farm sector demand given a
first rate cut. But there is sharp divergence in performance – better monsoon and likely government policy support to boost
positive returns during 2008 and 2012 cycles, and negative consumption, are supportive factors.
returns during 2002, 2015 and 2019 cycles. We retain our preference for Investment Sectors –
Growth outperforms Value. Value style equities, whose Manufacturing and Infrastructure. We find multiple structural
performance is linked to the stage of economy cycle, have drivers still in place for these sectors - sustained investment
lagged Growth peers before and after a rate cut as value-style cycle, continuity of past policy reforms, infrastructure delivery
equities perform well in an environment of improving macros and incentive schemes to boost domestic manufacturing
and rising bond yields. In period of stable or slower growth and ecosystem. India’s technological advancements, demographic
dividend and lower labour costs are additional tailwinds.

Fig. 2 Historically, Indian equities have seen a rotation in sector performance and style of investing
MSCI India indices performance (%) around the start of RBI policy easing

Source: Bloomberg, MSCI, Standard Chartered. Performance analysis of past 5 RBI policy easing cycles (2002, 2008, 2012, 2015 and 2019)

India Market Outlook 5

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2 Foundation: Our tactical asset

allocation

India allocation for a moderate risk profile

Our tactical asset allocation views (12m) INR

Summary View Detail

INR Cash ◆ + Safety, yields || - Reinvestment risk, Risk of missing higher returns elsewhere

Bonds ◆

Short-term bonds ◆ + Low sensitivity to rising rates || - Elevated inflation

+ High absolute yields, improving government bond demand-supply balance || -
Mid- to long- term bonds ▲
sensitive to rising yields

Equities ◆

DM Equities ▲ + Strong earnings growth, room for rate cuts || - Elevated valuations

Asia ex-Japan/ Other EM ◆ + Earnings rebound, China policy support || - China structural growth concerns
+ Robust growth, stable earnings || - weak exports amid slow global growth,
India – Large cap ▲
stretched valuation premiums
+ Higher relative earnings growth || - cyclically high relative valuations, negative
India – Mid/Small Cap ▼
earnings revisions

INR Gold ◆ + Portfolio hedge, central bank demand, falling real rates || - Resilient USD

Source: Standard Chartered India Investment Committee. || Green: upgrade from prior view | Red: downgrade from prior view
Legend: ▲ Overweight | ▼ Underweight | ◆ Neutral

India Market Outlook 6

6 Macro overview – at a glance
Key themes

We expect India’s economic growth to stay above its long-term trend and ahead of its major peers over the next 12 months.
Resilient domestic demand, broadening government policy support and focus on capex are tailwinds for growth. In our
view, CPI inflation could surge from the recent lows on fading base effects but stay within the RBI’s inflation target range
of 2%-6% on disinflationary pressures from previous policy tightening, lower food article prices given better monsoon and
likely government policy interventions to manage supply side concerns.

In our assessment, fiscal policy remains the key driver for growth in 2024, as financial conditions are tighter than normal.
Continuity of past policy measures undertaken by the government that include (i) greater public capex spend, (ii) structural
reforms and (iii) incentives to boost manufacturing and infrastructure, supports India’s medium-term growth outlook. In our
view, the RBI is likely to keep policy rates on hold in Q4 2024 and cut rates in Q1 2025 as inflation stays close to the
medium-term target of 4% and growth slows. However, the quantum of easing in this cycle is likely to be shallow.

Key risks to our macro-outlook are: 1) Global growth slowdown, 2) Persistent high inflation, 3) Escalating geo-political
tensions.

Key chart
Fig. 3 India’s growth-inflation dynamics stronger than peers
For FY2025, India’s GDP is
GDP Growth (Y/Y) and CPI Inflation (Year average) – Bloomberg consensus estimate*
expected to grow at 6.9%
12 9.1
and CPI is expected to 7.2 8.2 6.9 6.6 8 6.6
6.5 6.2
average 4.5%. 7 3.9 6 5.4
4.8 4.8 4.5 4.4
% y/y
% y/y

2 4 3.4

-3 2

-8 -5.8 0
FY19

FY20

FY21

FY22

FY23

FY24

FY25f

FY26f

FY19

FY20

FY21

FY22

FY23

FY24

FY25f

FY26f
Source: Bloomberg, Standard Chartered
Macro views at a glance
Factors View Comments
Economic activity moderated in August 2024. India’s Manufacturing PMI eased to 56.5 while Services PMI
Economic
◑ eased to 57.7 in September 2024. Industrial production grew 4.8% y/y in July 2024, higher than the 4.7% growth
growth
recorded in the previous month.
India’s consumer price inflation rose to 3.65% in August 2024, partly due to a high base effect and a rise in
Inflation ◓ food article prices. Core inflation rose to 3.44%, rising for the second consecutive month since hitting an all-time
low of 3.1% in May 2024.
The government prioritized fiscal consolidation while supporting growth in the latest budget. FY 2025
Fiscal deficit ◓ fiscal deficit is estimated at 4.9% of GDP vs interim budget target of 5.1%. GST collections eased to a four-month
low of INR 1.72trn in September 2024 compared to INR 1.75trn last month.

India’s trade deficit widened to USD 29.7bn in August 2024 compared to USD 23.5bn in July 2024. Imports
rose 3.3% y/y to USD 64.4bn, while export fell 9.3% y/y to USD 34.7bn. India’s current account recorded a deficit
External ◓
of USD 9.7 bn or 1% of GDP in Q1 FY2025 compared to a surplus of USD 4.6bn or 0.5% of GDP in Q4 FY2024.
This was driven primarily by a widening of merchandize trade deficit.

The RBI kept policy repo rate unchanged at 6.5% in its August 2024 policy review for the ninth
Monetary consecutive meeting. The RBI retained its monetary stance of ‘withdrawal of accommodation’ and indicated
◓
Policy flexible liquidity management through two-way actions. Further, the RBI retained its GDP growth forecast for FY
2025 at 7.2% y/y and retained its average inflation forecast for FY 2025 at 4.5% y/y.
Source: Bloomberg, Standard Chartered India Investment Committee

Legend: ○ Not supportive ◐ Somewhat supportive ◓ Balanced ◑ Supportive ● Very supportive

India Market Outlook 7

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7 Bonds – at a glance
Key themes

We are neutral on bonds as attractive absolute yields are counterbalanced by below-average yield premiums. Improving bond
demand-supply balance given lower government borrowing, higher RBI dividend and India bonds’ inclusion in the global bond
indices is a tailwind for bonds. We stay overweight medium and long-maturity bonds given their attractive carry and potential for
higher price gains as bond yields fall. We prefer corporate bonds (i.e., bonds that offer a yield premium over government bonds),
especially high-quality (AAA) corporates, given higher absolute ‘carry’ yields and cyclically high spreads.

In our view, the RBI’s prolonged pause on policy rates, indicates the likelihood that bond yields have peaked. We expect 10-
year IGB yield to trade in the range of 6.50%-6.75% over the next 6-12 months. In our assessment, high quality (AAA) corporate
bonds offer a better risk-reward given attractive spreads and improving corporate fundamentals. In addition, India’s real bond
yields are higher compared to most Emerging Market (EM) peers.

However, three factors for bonds remain unfavorable: 1) High fiscal deficit over the medium-term, 2) Tight banking system
liquidity and lack of outright support from the RBI, and 3) A populist tilt in government policy focus could drive inflation higher.

Key chart
Fig. 4 India’s nominal yield is better than most peers
India’s nominal yield is better
10-year government bond yields (%) adjusted for inflation
than most peers.
14.0
12.3
12.0
9.5
10.0

8.0 6.9 6.8

6.0
3.8
4.0 3.1
2.6 2.2
2.0

0.0
Brazil Mexico India Indonesia Malaysia South Thailand China
Korea

Source: Bloomberg, Standard Chartered.

Bond views at a glance

Factors Views Comments
India’s inflation-adjusted yield is better than most Emerging Market peers. The 10-year IGB real yield
Real Yields ◑
at 3.1% is same as the average real yield of 3.1% for other major EMs.
Government bond supply dynamics have turned favorable. The government pegged its gross
Supply dynamics ◑ borrowing for FY 2025 at ~INR 14.0trn compared to INR 15.4trn in FY 2024. Both, FY 2025 fiscal deficit
and government borrowing target was lower than market expectations.
Market expects no rate cuts by the RBI in the near-term. 1-year Overnight Indexed Swap (OIS) spread
Monetary policy ◓
suggests market participants expects the RBI to stay on hold over the next 12 months.
The RBI’s focus remains on withdrawal of excess liquidity. The banking system liquidity remains in
Liquidity ◓ surplus, currently at INR 2.74bn after hitting a deficit of INR 1.6trn in June. Improving government
spending could keep the banking system liquidity benign in H2 2024.
Demand dynamics have improved. YTD 2024, foreign investor inflows are positive and is likely to stay
Demand
◑ robust given India’s bond inclusion in global indices. Demand from domestic institutional investors (banks,
dynamics
insurers and mutual funds) will be a key determinant of bond yields in 2024.
Yield premiums trade below-average. The spread between 10-year IGB yield and repo rate is at 33bps
Yield premiums ◓ vs. 5yr avg. of 154bps. High-quality (AAA) bonds have turned attractive with the yield spread between 3Y
AAA rated bond and 3Y G-sec rising to 86bps, higher than 43bps in Oct 2023 and 10Y avg. of 70bps.
Source: Bloomberg, Standard Chartered India Investment Committee

Legend: ○ Not supportive ◐ Somewhat ◓ Balanced ◑ Supportive ● Very supportive

supportive

India Market Outlook 8

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1 Equity - at a glance
Key themes

We stay neutral on Indian equities. India’s robust domestic growth momentum, strong earnings delivery and robust domestic
investor inflows are counter balanced by stretched valuation premiums, both absolute and relative to peers. We expect volatility
to stay elevated in Q4 2024 as the government broadens its policy priorities amid a busy election calendar with state assembly
polls in key States and a tight race to US presidential elections. Within equities, we are overweight large-cap equities given
higher margin of safety in terms of earnings and stronger balance sheets to withstand market transitions.

In our view, Indian equities is likely to be supported by the below positive drivers: 1) GDP growth and earnings outlook remains
robust and is likely to outpace its major peers. 2) Stable inflows from domestic investors driven by inflows into systematic
investment plans and 3) Pace of foreign investor inflows could improve amid strong earnings delivery, start of US Fed rate cut
cycle, and low foreign investor positioning in Indian equities.

Risks to our positive equity view are: 1) Global growth slowdown and probable downgrades of earnings expectations, 2) Elevated
equity valuations, both absolute and relative to peers, 3) Foreign investor selling amid slowing domestic investor flows

Key chart
Over the medium term, Fig. 5 Indian equities performance closely tracks forward earnings estimates
Indian equities are MSCI India index level and 12-month forward earnings expectation
driven by earnings 3400 140
delivery.
2900 120

2400 100

1900 80

1400 60

900 40

400 20
Sep-14 Sep-16 Sep-18 Sep-20 Sep-22 Sep-24

MSCI India 12M Fwd EPS (RHS)

Source: Bloomberg, Standard Chartered

Equity views at a glance
Factors Views Comments
Growth-inflation dynamics remain supportive of equities. Growth focused fiscal policy, improving
Economic
◑ real income levels and broadening growth momentum is likely to support corporate profitability.
environment
Volatile food article prices, remains a key risk.
Earnings growth expectations are robust. Nifty index delivered 23% EPS growth in FY 2024,
Earnings growth ◑ significantly ahead of estimates. Bloomberg consensus earnings growth expectations for the Nifty
Index for FY 2025 and FY 2026 stands at 10% and 14% respectively. EPS estimates for large-cap
equities (Nifty index) have seen modest downward revision compared to broader markets.

Valuations stretched. Nifty 12-month forward P/E at 21.1x, is below its peak of 23x, but higher than
Valuations ◓ its long-term average of 18x. Price-to-book value ratio (P/B) at 4.0x and Market cap to GDP ratio at
~146%, are above long-term averages. Mid-cap equities 12-month forward P/E trades at peak 58%
premium to large-cap equities, significantly higher than its 10-year average premium of 20%.

Foreign investors remain buyers post the general election results. YTD 2024, foreign investors
have bought about USD 10.1bn worth of equities compared to USD 21bn inflows in CY 2023.
Flows ◓
Domestic institutional investors remain buyers in 2024. YTD 2024, domestic institutional investor
inflows touched an all-time high are at USD 43bn, compared to USD 22.3bn inflows in CY 2023.

Source: Bloomberg, Standard Chartered India Investment Committee

Legend: ○ Not supportive ◐ Somewhat ◓ Balanced ◑ Supportive ● Very supportive

supportive

India Market Outlook 9

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8 Equity sector views

Prefer a barbell-sector strategy Fig. 6 Our sector views

India
We retain our preference for domestic cyclicals given resilient
Financials
domestic growth, stable earnings growth, and our expectation
of government and policy continuity. Overweight on Financials Industrials

and Industrials is balanced with a defensive overlay via Consumer Staples

Overweight on Consumer Staples. We downgrade Materials Information Technology

to Underweight. Consumer Discretionary
Healthcare
Financials – Overweight
Materials ▼
Financials remain an overweight. The sector’s strong linkage
Energy
to domestic growth makes it attractive in a period of
Utilities
normalizing growth and declining interest rates. Healthy
Source: Standard Chartered
corporate balance sheets and strong loan disbursals is likely
to off-set interest margin compression. Further, healthy asset Legends: Overweight | Neutral | Underweight

class position given improved contingent buffers and increased ▲ Upgrade from last quarter | ▼ Downgrade from last quarter
regulatory supervision, is likely to contain slippages and Fig. 7 Sector valuation and earnings growth estimates
provisioning requirements. Earnings expectations are robust,
with ahead of market EPS growth of 26% and 13% for FY25
12-mth Fwd P/E (x) EPS Growth (Y/Y)
and FY26. The sector is trading at a 12-month forward P/E of
MSCI Sector Current 15yr Avg FY25 FY26
16.8x, lower than market valuation of 24.6x for MSCI India.
India 24.6 17.6 15% 17%
Industrials – Overweight
C. Discretionary 33.4 18.8 35% 19%
Industrials remains an overweight sector. The sector benefits C. Staples 52.6 35.2 6% 14%
from a multi-year investment-led economic growth cycle. The Energy 15.8 12.9 12% 7%
government’s continued focus on capital expenditure in FY
Financials 16.8 15.9 26% 13%
2025 annual budget, coupled with providing incentives to
Healthcare 33.5 22.8 23% 19%
boost manufacturing and infrastructure spending is a strong
structural driver for the sector. After a slow start to FY 2025 Industrials 38.8 22.3 31% 22%

due to elections, new orders and execution has improved in IT 28.5 19.7 10% 11%
Q2 amid robust public capex outlay, healthy order book and Materials 22.6 14.2 16% 35%
likely pick-up in private capex. Earnings outlook for the sector Utilities 21.6 12.4 7% 11%
is among the strongest across sectors (FY25/FY26 EPS at Source: Bloomberg, Standard Chartered
31%/22% y/y respectively), justifying premium valuations.

Consumer Staples – Overweight Fig. 8 Defensive sectors outperform in Q3 2024

Q3 2024 sectoral performance (%) as of 4 Oct 2024
Consumer Staples is an Overweight. Though, the revenue
and growth outlook for the sector lags peers, we like it for its 20% 16% 16%
defensive nature in a period of growth normalization and 9%
11%
policy easing. We find improved prospects for the sectors 10% 6%
5%
3% 3%
performance, supported by strong macros, early signs of
improving rural demand, expectations of improving farm 0%
income on normal monsoons and likely government support -3%
to boost consumption in low-income households. Earnings -10% -6%
IT
Industrials

Financials

India
Energy

Materials

C. Discretionary

C. Staples

Healthcare
Utilities

outlook for the sector has improved from the past year
(FY25/FY26 EPS growth at 7%/14% y/y). Valuations though
stretched, are reasonable compared to pandemic-era highs.

Source: Bloomberg, Standard Chartered.

India Market Outlook 10

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Global Equities – at a glance

Key themes
We retain a core holding (Neutral) on global equities and expect them to perform in line with bonds and outperform cash.
We are Overweight US equities, underpinned by our expectation that Fed rate cuts will achieve a soft-landing for the US
economy. We expect US outperformance to be driven by its accelerating earnings growth heading in 2025. A cooling labour
market and the US elections in November are near-term risks to the market.
We see UK equities as a core holding (Neutral) with an attractive dividend yield and valuation discount, alongside improving
economic data. UK equities offer a defensive sector composition but the lack of growth sectors could limit outperformance. We
are Underweight Europe ex-UK equities amid a deteriorating earnings outlook, despite cheap valuations.
Asia ex-Japan equities are a core holding (Neutral). Within the region, we are Overweight India equities, supported by rapid
economic growth and robust net inflows from foreign investors. China equities are a core holding (Neutral) for us with ongoing
policy easing measures likely to help moderate concerns about economic growth in China. We downgrade South Korea
equities to Underweight as price momentum has been poor amid market concerns about its significant exposure to weak
demand for memory semiconductor chips. Japan equities are a core holding (Neutral). We are encouraged by improving share
buybacks and the reflationary environment, although the transition to a new prime minister could result in some uncertainty.

Key chart
Equities supported with Fig. 9 US equities’ consensus earnings growth in 2025 is expected to be the highest
falling inflation and Fed among major markets; US equities typically perform well in a post-rate-cut soft-landing
pivot Earnings growth across key regions in 2024 and 2025; S&P500 12m trend after past Fed rate
cuts*
30 27.8 1,600 7.0
Earnings growth (%)

25 1,400 6.5
6.5
20 15.1
1,200 1,320 6.0
14.5
1,000
Index

15 9.9 9.8 5.5

%
8.5 8.9 8.9
10 800
3.5 600 5.0
5 0.0
0 400 4.5
US Euro area UK Japan Asia 200 4.0
ex-Japan Jan-95 Feb-97 Mar-99 Apr-01
2024 2025
S&P500 Fed funds rate (RHS)

Source: FactSet, Bloomberg, Standard Chartered; *Fed rate cuts in 1987, 1995 and 1998 resulted in an
economic soft-landing, while cuts in 1989, 2001 and 2007 failed to prevent recessions (Hard landing).
*Table below: Neutral China onshore vs offshore

The bullish case The bearish case

US Tailwinds from a soft-landing scenario – Overconcentration on Magnificent 7

equities Broadening earnings growth – Macro uncertainties: e.g., US election
▽ ◇ ▲ Technology sector propelling performance – Expensive valuations. Elevated positioning

UK High dividend yield; Cheap valuations – Weak earnings growth expected in 2024
equities Relatively defensive sectors – Light in growth sectors
▽ ◆ △ ▲ Recovery in economic data – Economic rebound may not sustain
Preference order

Asia ex-Japan China’s fiscal and monetary stimulus – Soft survey data and economic activities
equities Higher EPS growth projected in 2024 – Lack of confidence from investors
▽ ◆ △ Attractive valuations; Low positioning – Intensification of geopolitical tensions
Within AxJ India ▲ China* ◆ Taiwan ◆ South Korea ▼ ASEAN ▼

Japan Rising share buybacks and dividends – Foreign net inflows decelerating
equities Rising ROE from corporate reforms – Rebound in JPY to hurt company earnings
▽ ◆ △ Further improvement in earnings outlook – Exposed to global cyclical slowdown

Europe ex-UK Appealing corporates’ buyback & dividend – Deteriorating earnings outlook
equities Cheap valuations – Increasing geopolitical tensions
▼ ◇ △ Loosening policies from the ECB – Slump in economic sentiment
Source: Standard Chartered Global Investment Committee Legends: ▲ Overweight | ▼ Underweight | ◆ Neutral

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10 FX and commodities – at a glance

Key themes

We expect USD/INR to remain stable around 84 over the next 12 months. INR gains are likely to be limited as significant
fund inflows to equity and bond markets is counterbalanced by the RBI continuing to purchase US Dollars to add to reserves
with the goal of currency stability. Strong economic growth, stable balance of payments, contained inflation, and a mildly bearish
USD outlook are key factors supportive of the INR over a 12-month horizon. However, slowing export growth amid weak global
growth outlook, narrowing policy rate differential following the start of US Fed rate cutting cycle, potential rise in safe-haven
demand (amid geopolitical tensions) and the US elections are likely to weigh on the INR.

We expect the USD index (DXY) to be largely flat over the next three months and move modestly lower over 12 months.
Safe-haven demand (amid geopolitical tensions) and the US election drawing near are likely to provide near-term support to
the greenback. Meanwhile, the Fed is likely to cut rates gradually until the US unemployment rate returns to neutral, which
should narrow the USD yield advantage in the longer term. FX volatility remains around the 5-year average and we do not see
any significant catalyst for it to rise for now.
We raise our 3- and 12-month gold price forecast to USD 2,600/oz and USD 2,800/oz, respectively. Gold prices charged
higher to new all-time highs in September as the Fed commenced its rate cutting cycle with a jumbo 50bps cut. While
expectations of Fed and other central bank rate cuts may be largely priced into the market, they could still provide some boost
to gold prices when implemented. Consequently, global gold ETF inflows would also enjoy an uplift. Robust official sector
purchases have been a strong anchor of demand in the recent years. The latest Q2 data continued to reflect that – central
bank purchases in the first half of this year are the largest since the turn of the century. Given the structural nature of central
banks’ demand, we see that sustaining heading into 2025.

We lower our 12-month WTI oil forecast to USD 70/bbl on rising growth and supply risks. Crude oil prices slumped this
month, driven by growing demand concerns amid a slew of soft data and pessimistic outlook. Concurrently, positioning has
declined to a near-record short. While our base case is not a recession, we believe the global economy could cool further,
weighing on oil demand. The demand-supply balance is likely to turn to a surplus, especially as the OPEC+ begins its recently
delayed tapering plan in December. Reports of Saudi Arabia shifting from targeting price to market share is also an upside risk
to supply. In the near term, we see WTI oil trading at around USD 70/bbl, albeit with some volatility. Firstly, the extreme bearish
oil position is prone to a reversal. Secondly, geopolitical tensions, particularly in the Middle East, could escalate. Thirdly, the
new agreement between rival Libyan factions to appoint a new central bank governor may see more supply returning to market.

Key chart
Strong macros and Fig. 10 Robust foreign investor flows and strong macro are supportive of the INR
robust foreign
LHS chart: USD/INR Spot -LHS and DXY Index – RHS
investor inflows to
off-set impact of RHS chart: USD/INR Spot -LHS and Brent Crude oil price (USD/bbl) – RHS
weak exports and 83.0
135.0
120.0
safe-haven in 83.0 115.0
demand in the 79.0
near-term 79.0 95.0
110.0
75.0
75.0 75.0
71.0 71.0
100.0 55.0
67.0 67.0 35.0
63.0 90.0
63.0 15.0
Mar 19 Mar 20 Mar 21 Mar 22 Mar 23 Mar 24
Mar 19 Mar 20 Mar 21 Mar 22 Mar 23 Mar 24
USD/INR spot- LHS DXY Index - RHS USD/INR spot- LHS
Brent Crude oil price (USD/bbl) - RHS
Source: Bloomberg, Standard Chartered

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16 Foundation: Asset allocation summary

View vs. Moderately Very
Summary Conservative Moderate Aggressive
SAA Aggressive Aggressive
Cash ◆ 25.0 5.0 5.0 5.0 0.0

Fixed Income ◆ 55.0 55.0 40.0 25.0 15.0

Equity ◆ 15.0 35.0 50.0 65.0 80.0

Commodities ◆ 5.0 5.0 5.0 5.0 5.0

Level 1 Level 2 Level 3

Cash & Cash

◆ 25.0 5.0 5.0 5.0 0.0
Equivalents

Short-term
◆ 36.1 30.6 25.0 15.1 8.8
Bonds
Fixed Income
Mid/Long-
 18.9 24.4 15.0 9.9 6.2
term Bonds
DM Equity  2.5 4.9 7.4 9.9 12.5
Asia Ex-
Japan /
◆ 1.4 2.8 4.2 5.6 7.0
Other EM
Equity Equity
Indian Large-cap
 9.4 23.1 32.5 41.9 51.2
Equities equities
Mid/small-
 ▼ 1.7 4.2 5.9 7.6 9.3
cap equities
Commodities
◆ 5.0 5.0 5.0 5.0 5.0
(INR Gold)
100 100 100 100 100

▼ Underweight ◆ Neutral  Overweight

Source: Bloomberg, Standard Chartered

All INR converted exposure. For illustrative purposes only. Please refer to the disclosure appendix at the end of the document

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16 Performance of our calls

Open calls Open date Close date Absolute Relative

Equities

Indian large-cap equities to outperform mid-cap and small-cap equities 18-Dec-23

Bonds

Indian mid-and long- maturity bonds to outperform short-maturity bonds 18-Dec-23

Thematic

Indian corporate bonds to outperform government bonds 18-Dec-23

Indian Investment sectors to outperform Indian equities 18-Dec-23

India Consumer Staples to outperform Indian Equities 8-Jul-24

Sectors

India Industrials Sector to outperform Indian Equities 18-Dec-23

India Financials Sector to outperform Indian Equities 8-Jul-24

Closed calls Open date Close date Absolute Relative

Equities

Indian equities to outperform all other asset classes 18-Dec-23 5-Jun-24

India Healthcare Sector to outperform Indian Equities 18-Dec-23 8-Jul-24

Sectors

India Consumer Discretionary Sector to outperform Indian Equities 18-Dec-23 8-Jul-24

Thematic

Indian Value style equities to outperform Growth style 18-Dec-23 8-Jul-24

Source: Bloomberg, Standard Chartered. Performance measured from 18 December 2023 (release date of our 2024 Outlook) to 4 October 2024
or when the view was closed.
Legend: – Correct call; – Missed call; n/a – Not Applicable.
Past performance is not an indication of future performance. There is no assurance, representation or prediction given as to any results or
returns that would actually be achieved in a transaction based on any historical data.

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18 Market performance summary*

Source: MSCI, NSE, S&P BSE, Crisil, Bloomberg, Standard Chartered

*2024 YTD period from 31 December 2023 to 4 October 2024. 1-month period from 5 September 2024 to 4 October 2024.

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