Foreign portfolio investment: How corporate leverage has remained largely unchanged over

economictimes.indiatimes.com:

foreign portfolio investment (FPI) chasing the India story in earnest. And there seems to be further legs to the rally because valuations are still some way off their pre-pandemic peaks. Earnings have powered ahead, while corporate leverage has remained largely unchanged over the medium term.

Forward earnings guidance is positive due to India's relative isolation from the global markets. This is working both for domestic demand, which is offsetting an external slowdown, as well as for household savings that continue to pour into equities. Mid and small caps that are typically favoured by domestic investors have peaked ahead of large caps.

Strong credit demand has pushed banking stocks far ahead of the pack, although every Nifty sub-index is higher now than it was a year ago. The renewed interest in Indian equities provides companies a window to add leverage for an upturn in private investment. Instead, India Inc continues to improve its credit profile as consumer demand pulls up capacity utilisation slower than anticipated.

The pace of deleveraging is declining, though, with pockets of demand recovery raising capex selectively. There are signs that interest costs are beginning to squeeze corporate profits. Their impact, however, is limited because rural demand remains a drag.

Investors have a safe bet in Indian equity performance once consumption demand triggers capex. The supporting conditions are already in place. India is a draw because it offers investors a rare clarity on growth and inflation.

Other emerging economies will, however, have better visibility on both as their post-pandemic recovery stabilises. This could pull down some of India's outperformance. Advanced economies could also face shallower recessions.