Fundview: JM Financial Asset Bullish On Manufacturing, Exporter Shares After India-US Trade Deal

NEW DELHI: India's trade deal with the U.S. will improve the outlook for domestic equities over the next 12 to 18 months, providing a boost to manufacturing and export-oriented stocks, JM Financial Asset Management said on Tuesday.

President Donald Trump on Monday announced a trade deal with India that slashes U.S. tariffs on Indian goods to 18% from 50% in exchange for India halting Russian oil purchases and lowering trade barriers.

"India's competitive advantage is enhanced," JM Financial Asset Management's chief investment officer, Satish Ramanathan, told the Reuters Trading India forum. "With lowest tariffs, wider access to markets, and lowest cost of labour, this is a turning point."

Ramanathan's firm, which manages 100 billion rupees ($1.11 billion) in equities, plans to increase its exposure to India's small- and mid-cap stocks, particularly to tap opportunities among firms that could integrate more deeply into U.S.-linked supply chains.

From a valuation perspective, Ramanathan said large-cap stocks remain attractive, though their growth outlook was relatively more moderate.

According to brokerage Motilal Oswal Financial Services, the Nifty 50 index is trading at a 12-month forward price-to-earnings ratio of 21.2 times, slightly above its long-period average of 20.8 times, resulting in a modest 2% premium.

In contrast, select mid- and small-cap companies could deliver stronger earnings momentum if export demand strengthens and domestic manufacturing activity accelerates, Ramanathan said.

"We need to have a better balance in exposure to SMIDs (small- and mid-cap) to capture this potential," he said.

Ramanathan said that companies were reporting improved profitability despite being hit by higher wage-related costs over several quarters. With the earnings season still going on, he did not give a detailed sectoral outlook.

India's medium-term fundamentals are intact, and investors should not become "too bearish" despite near-term uncertainties, Ramanathan said, cautioning that potential spikes in bond yields, currency volatility and shifts in U.S. interest rate expectations could impact foreign portfolio flows to India.

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