Unmesh Kulkarni Discusses BSE Sensex, Nifty 50, and the Rate Cut Cycle in India

The Comforting Valuations of BSE Sensex and Nifty 50

Unmesh Kulkarni, Managing Director Senior Advisor at Julius Baer India, states that one sector that provides reasonable comfort in terms of valuations is the Banking & Financial Services (BFSI) space, which is currently our preferred sector. Despite relative underperformance due to pressure on NIMs, steady credit growth and healthy asset quality are expected to positively impact the sector.

Anticipating Rate Cuts and Economic Growth

Following the US Federal Reserve's recent policy moves, Kulkarni predicts that the Reserve Bank of India (RBI) will likely begin cutting rates around December 2024 or February 2025. However, he cautions that, "the rate cut cycle in India will be shallower than that in the US due to the Indian economy's robust growth momentum."

India's Economic Stability and Resilience

• Despite challenges, Indian economic indicators suggest a positive trend, with healthy business activity and strong GST collections.
• A recovery in rural demand is anticipated from a decent monsoon season.
• The government has been proactive in capital expenditure, supporting the overall economic landscape.
• Future private capex growth is likely backed by improvements in capacity utilization.

Overall, Kulkarni maintains a constructive view on Indian equities, pointing to healthy earnings momentum and growing domestic liquidity. While monitoring potential amber signs, he asserts that strong domestic flows should cushion market volatility.

Bond Yields and Investment Opportunities

With expectations of rate cuts in 2025, Kulkarni believes the fixed-income market will benefit. CPI inflation in India aligns comfortably within the RBI's target range, allowing space for rate adjustments. As yields trend downward, investment in both corporate and government bonds looks increasingly favorable.