DBS Bank neutral on India but prefers small and midcaps

economictimes.indiatimes.com:

DBS Bank's Senior Investment Strategist Joanne Goh says they have a neutral stance on India but on a risk-adjusted basis, the preference is for small and midcaps where high growth potential offers opportunities for significant returns.

Edited excerpts from a chat:

Your investment outlook report is bullish on equities following the Fed's easing cycle. In the Indian context, how significant is the issue of valuations?
The outperformance of Indian equities has been powered by robust earnings growth, coupled with significant P/E rerating led by rising domestic inflows that sent valuations soaring. As economic growth moderates and corporate earnings experience some slowing, we may see a period of consolidation and variability in returns. However, we remain confident that the longer-term outlook continues to be promising.

Following the Fed’s rate cut in September, an environment of lower rates will catalyse economic recovery. Despite signs of a slowdown in cyclical indicators, the RBI maintains an optimistic view on growth based on stronger rural demand, service sector activity, and investments, keeping FY25’s growth forecast at 7.2% YoY.

The Fed's easing cycle has not always led to higher stock prices. How relevant do you think the history of 1995 is, when the S&P 500 registered nearly a 14% gain in the subsequent 12 months following a rate cut?

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