Will the sun stop shining on Indian small and midcap stocks?

economictimes.indiatimes.com:

Source- Bloomberg

Source- Bloomberg

Source- Bloomberg, JM Financial Research

We continue to believe India’s decoupling with the world as far as equity markets are concerned which has started in the last 6 months will be sustained, because of the country’s resilient economic growth of 6-7% p.a. more than twice as much relative to the world; lower foreign debt dependence for its growth and very strong corporate profitability growth of over 15% CAGR next three years.
In the longer run over a 20-year period history has shown all three sectors in India have given robust and similar returns to investors, ranging from a cagr of 15% to 17%.

Hence we believe it is more important for investors to look at investing in the right companies as against focusing on their market caps.
Source- World Bank, JM Financial Research

Corporate India is witnessing double-digit growth in the last three and we estimate it will extend in the next three years. The financial sector has in the last 3 years post-COVID increased its contribution in earnings to indices to 33%.

We are bullish on the loan book growth which has been a steady 15-16% in the last 15 months as against 11-12% historically. However, we believe NIMs seem to have peaked out in the near to medium term.

Finance Companies will also largely normalize their earnings from F2024 hence on a YoY Basis Loan book growth should largely equate to net profit growth. Historically the growth in Net profit for the financial sector F20-23 was 37% cagr as against our estimates of 12-15% F23-25.

Hence though we like some of the larger banks we see higher earnings growth in the niche microfinance sector and also in the Non-financial domestic-facing sector. We think the profit contribution for the Index is