Govt welfare measures could boost rural demand, private consumption: HSBC

While we acknowledge the risk of delay in RBI rate cuts, the 4-2 split vote in the June meeting points towards eventual pivot to rate cuts, the report says | Photo Credit: STEFAN WERMUTH

Mumbai

While India’s GDP growth is expected to modestly slowdown in the remaining three quarters of 2024, potential Government focus on welfare measures could help boost the rural demand and support private consumption, according to a HSBC Global Private Banking (HSBC GPB) report.

“We also expect a pick-up in private capex and FDI, with the election uncertainty behind us,” HSBC GPB said, adding India’s economic momentum remains robust.

In the first quarter ended March 2024, India’s GDP growth exceeded consensus estimates yet again, clocking in a 7.8 per cent year-on-year GDP growth, it added.

Overweight on equities

“We maintain a mild overweight on Indian equities over the next 6-12 months as long-term fundamentals still paint a supportive backdrop,” per the report.

Indian equities benefit from strong domestic investor base – both institutional and retail, light positioning from foreign investors and strong GDP growth trajectory which is expected to translate to corporate earnings growth.

The above-mentioned factors should offset the concerns of elevated valuation, HSBC GPB said.

“We continue to favour large-cap equities over small and mid-cap equities, owing to their more defensive characteristics and cheaper valuation.

“From a sector perspective, we favour Indian banks, consumer discretionary and industrials which benefit from the booming digital economy, consumer spending and government spending push towards infrastructure and manufacturing,” said James Cheo, CIO for South East Asia and India at HSBC GPB and Wealth, adding he is bullish on Indian local currency bonds.

On rate cut

“While we acknowledge the risk of delay in RBI rate cuts, the 4-2 split vote in the June meeting points towards eventual pivot to rate cuts, which should lead to capital appreciation (and decline in yields),” the report said.

The supportive demand-supply dynamics should allow markets to absorb any increase in supply to fund welfare scheme.

HSBC GPB noted that the recent rating action by S&P, upgrading the outlook for Indian sovereign ratings to “positive” points towards chances of a rating upgrade.

“We remain sanguine on INR (Indian Rupee). INR remains one of the best performing currencies in Asia, aided by RBI’s proactive stance to use its sizeable forex reserves to manage currency volatility and the structural inflows into Indian bonds,” the report said.