The India Briefing

India Equities pullback - A healthy correction

This month, we look into valuations for the Indian equity markets given the recent market pull-back and share our views on the longer-term picture.

Please find below our latest thoughts on India:

  • As the saying goes, “be careful what you wish for.” Throughout the whole of last year, many investors took a wait-and-see approach with regards to India equities, believing in the fundamental growth drivers for the market but anxious about the valuations.
  • Since the writing of our last India Briefing in late November, the MSCI India index has fallen by around 8%.1 Combined with the rally in other markets, this has resulted in a significant pullback in the valuations of Indian stocks relative to global equities (Figure 1).
Figure 1: MSCI India – P/B relative to MSCI World P/B
The MSCI India index has fallen by around 8% since November 2024. Combined with the rally in other markets, this has resulted in a significant pullback in the valuations of Indian stocks relative to global equities.

Source: Bloomberg, Allianz Global Investors, as of 13 January 2025. The average valuation is calculated over the period of past 15 years, or since data became available.

  • We can point to a number of different triggers for the recent weakness in Indian equities – these include a lower GDP print, reports of urban consumption weakness, a slowdown in corporate earnings, Indian rupee (INR) depreciation, foreign institutional (FII) outflows, and risk-off sentiment stemming from the US presidential handover.
  • Looking at the bigger picture, however, our view is that the recent slowdown in economic momentum is related to one-off events and is not symptomatic of negative structural trends.
  • Let’s take these one at a time.
  • First, financial conditions have tightened, and GDP growth has slowed; deliberate measures were undertaken to prevent economic overheating, especially in pockets like unsecured lending and microfinance.
  • Post this policy-driven slowdown, however, there are broad expectations for an easing of liquidity and potential rate cuts over the next few quarters, initiated by Sanjay Malhotra, the new Reserve Bank of India (RBI) governor who took charge in December.
  • Meanwhile, adverse weather conditions, including heavy rainfall and heatwaves across the country, restricted government spending, as did state elections concurrently conducted during this period.
  • On the consumer front, data suggest that urban consumption, which had been steadfast for most of last year, slowed in recent months despite an improvement in inflation conditions.
  • At a micro level, it seems that consumption actually remains robust – only that consumer preferences are driving the emergence of new winners. For example, categories like hotels, air travel, and new home sales have been strong and are experiencing wallet share gains at the expense of legacy brands.
  • Overall, we think that India will sustain GDP growth exceeding 6% annually for many years. Minor fluctuations (0.5%–1%) in GDP growth reflect natural adjustments in a dynamic and growing economy.
  • As such, we believe the worst will soon be behind us with regards to earnings, too. Moving forward, governmentled capital expenditure, which has been a key drag on earnings, is expected to reverse and contribute positively.
  • In the September quarter, negative earnings-per-share (EPS) revisions at -4.5% accounted for only one-third of the market correction of more than 15% since the peak in September, indicating that the market reaction may have been overdone.2
  • As we look at contributing factors globally, the Indian rupee (INR) has depreciated recently after years of relative stability. This is largely a function of the US dollar (USD) appreciating against most other currencies, not just INR. It also has links to FII outflows from the equity market amidst risk-off posturing.
  • In our view, India’s robust fundamentals should support the INR over the longer term. The country has forex reserves of more than USD 600 billion.3 A further buffer is India having one of the lowest external debt-to-GDP ratios amongst its emerging markets peers at ~19%.4
  • Donald Trump’s return to the White House has clearly created an environment where investors globally are braced for uncertainty. However, in the case of US-India relations, our view is that India could, in fact, benefit from Trump’s trade policies.
  • India’s large IT services exports to the US, valued at USD 101 billion, stand to benefit from potential US corporate tax cuts.5 In addition, Trump’s first term boosted the ‘China+1’ strategy and diversification of supply chains, enhancing India’s position as a neutral and reliable business hub. This has created opportunities in diverse areas including auto components, electronics manufacturing, and solar modules.
  • Looking ahead, we see a number of other continued structural tailwinds for India equities. These include positive demographics and productivity gains, political stability, and a favourable market structure featuring a large universe of liquid stocks that have low correlations with one another and with other asset classes.
  • Encouragingly, India equities now look more reasonably valued – with a price-to-earnings growth (PEG) ratio sitting roughly in the middle of the pack relative to other equity assets (Figure 2). The margin of safety for buying India equity has become more attractive.
Figure 2: Price-to-earnings growth (PEG) by market and region
India equities now look more reasonably valued – with a price-to-earnings growth (PEG) ratio sitting roughly in the middle of the pack relative to other equity assets.

Source: Goldman Sachs, using MSCI index unless stated otherwise, as of 21 January 2025. US = S&P 500. PEG defined as EPS growth (2025-2026) divided by 12-month forward PE.

  • Overall, we view the recent market pullback as a healthy correction. We have been using this as an opportunity to buy some of our favoured stocks at valuations that we expect should form the basis for attractive longer-term returns.

1 IDS, Allianz Global Investors, as of 22 January 2025.
2 Allianz Global Investors, as of 31 December 2024.
3 Macquarie, as of 12 January 2024.
4 Reserve Bank of India, as of 30 June 2024, published 30 September 2024.
5 Citibank, Macro and Market Implications from Trump 2.0, as of 6 November 2024.

  • Disclaimer
    Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

    The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

    This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of this document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced, except for the case of explicit permission by Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional /professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

    This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorized and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).

    AdMaster: 3414351

Allianz Global Investors

You are leaving this website and being re-directed to the below website. This does not imply any approval or endorsement of the information by Allianz Global Investors Asia Pacific Limited contained in the redirected website nor does Allianz Global Investors Asia Pacific Limited accept any responsibility or liability in connection with this hyperlink and the information contained herein. Please keep in mind that the redirected website may contain funds and strategies not authorized for offering to the public in your jurisdiction. Besides, please also take note on the redirected website’s terms and conditions, privacy and security policies, or other legal information. By clicking “Continue”, you confirm you acknowledge the details mentioned above and would like to continue accessing the redirected website. Please click “Stay here” if you have any concerns.