SBI Takes ‘Neutral’ Stand On Indian Equities

New Delhi: An SBI Mutual Fund report on Monday changed the Indian equities’ outlook to neutral from an underweight stance in 2024, as the domestic benchmark indices continue to perform well despite global uncertainties. From a contrarian viewpoint, this shift to neutral from underweight equities represents a healthier market outlook and better long-term entry points for investors, “though we are not yet ready to recommend overweight positions”, said SBI ‘Market Outlook’ report.

The Indian equities gained in May despite tariff uncertainties. Nifty and Sensex increased 1.7 per cent and 1.5 per cent (on-month), respectively. FPIs turned net buyers even as overall market breadth weakened. The Q4 FY25 corporate earnings scorecard was modest (single-digit profit growth), but largely in line with expectations, which has helped to arrest incremental earnings, downgrades in May.

Even as metals, healthcare, capital goods, PSU banks, and chemicals have recorded a healthy profit growth, weakness in private banks results, coupled with a drag from Oil and Gas (ex OMCs), put pressure on profitability.

Valuations have become more reasonable after the recent decline in Indian 10-year bond yields and a de-rating in price-to-earnings multiples. “Our preferred measure — the earnings yield to bond yield spread — now suggests modest valuations compared to last year’s highs,” the report mentioned. “In our view, quality and long-term fundamentals will start getting rewarded versus narrative-based and, to some extent, speculative price action of the past year,” it added.