Indian Stocks: Vivek Bhutoria's Outlook Hinges on Upcoming Policy Events

For three consecutive quarters, Federated Hermes money manager Vivek Bhutoria has maintained a bearish stance on Indian equities. However, two key policy events scheduled within the next week may prompt him to reconsider his position.

According to Bhutoria, who oversees $2.7 billion in emerging market assets, the market is in a "wait-and-watch" mode. India is facing a confluence of challenges, including decelerating growth, constrained liquidity, a depreciating rupee, foreign capital outflows due to the dollar's strength, disappointing earnings, and elevated valuations.

The first pivotal event is the federal budget on Saturday, which could potentially provide a catalyst for optimism by implementing measures to stimulate consumption and adhering to fiscal consolidation. Furthermore, the central bank's monetary policy decision on February 7th could offer another stabilizing factor for the stock market, which is on track to end its longest losing monthly streak since 2001.

Since its all-time high in late September, India's benchmark NSE Nifty 50 Index has shed over 11%, dragged down by decelerating economic growth and foreign fund outflows. The nation's currency has reached successive record lows against the US dollar, and earnings at some of the largest companies are falling short of analyst projections during the ongoing results season.

Global investors have offloaded $20 billion worth of local shares on a net basis since the end of September, questioning the premium valuations of Indian stocks relative to their emerging market counterparts amid weakening earnings momentum. The Nifty 50 currently trades at a multiple of 18.8 times forward earnings, compared to 11.9 times for the MSCI Emerging Markets Index.

Despite these challenges, Bhutoria remains optimistic about the shares of select private Indian banks. "Operationally, there are no significant risks," he explained. "Banks are well-capitalized, asset quality is stable, they have adequate provisions, and corporate health is sound." HDFC Bank Ltd. and ICICI Bank Ltd. are among Federated Hermes' top India picks within its global emerging market portfolio.