India offers the best structural growth story among the large economies, global brokerage UBS said.“Combined with political stability and supportive government policies, India remains in a favourable position and is the most preferred in our Asia ex-Japan asset class preferences among equities," UBS said.
The nation has demonstrated remarkably positive GDP growth, consistently surpassing 8 percent in the initial three quarters of FY2024, notes UBS.
The momentum of growth is anticipated to persist, fueled by cyclical recovery and ongoing structural enhancements. Despite potential global headwinds that might moderate growth, UBS forecasts India to sustain a commendable 7 percent growth rate in FY2025.
While India's stock market valuation currently exceeds its 10-year average by one standard deviation, UBS remains optimistic, deeming downside risks manageable within the supportive domestic macro and micro environment.
Moreover, UBS perceives the shift in the rate cycle as conducive to valuations, as the equity risk premium is expected to decline.
Recent trends in shareholding patterns reveal a noteworthy shift, with foreign portfolio investor (FPI) ownership of Indian equities (BSE500 index) at a decade low of 17.8 percent, while domestic institutional investors (DII) have reached a record high of 14.3 percent, buoyed by DII inflows.
The diminishing gap between FPI and DII ownership, now at a mere 3.5 percent difference, suggests a shrinking dominance of FPI flows in Indian equities.
Despite FPI ownership hitting a decade low, UBS doesn't foresee significant outflows from current levels, indicating a level of stability in the market.
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