India: Asia’s most dynamic stock market

India: Asia’s most dynamic stock market

India’s economy, with a total GDP of $2.6 trillion, ranks as the third largest economy in Asia and the 6th largest in the world. India’s economic strength comes from its massive population of nearly 1.4 billion people and significant growth over the last two decades, turning India into a global economic powerhouse.

While India is largely known for its IT and textile industries, the Asian nation also produces large quantities of iron and steel, jute fiber, sugar, cement, chemicals and automobiles. Services, including financial and IT services, are a large part of the Indian economy.

Fast growing economy, robust stock market

India’s stock exchange currently ranks as the 10th largest in the world as of 2021 (valued at over $3.4 trillion in market capitalization). The top industries represented are agriculture, commodities, aviation, and automobiles. Some of the most notable companies include Infosys, Reliance Industries, and Tata Consultancy Services, as well as subsidiaries of major global companies such as Unilever.

Despite declining by around 7% on average from the beginning of the year, Indian stocks are still quite expensive versus other emerging markets (EM) stocks. There are some stocks whose valuations have turned attractive, but the market as a whole is not a “screaming buy” at the moment; it would take another correction of 5% to 10% to make valuations look attractive in general.  

It’s important to note that India’s stocks trade at a historical premium compared to the rest of the emerging markets in the last decade or more. Although it makes them look expensive, these stocks trade in a completely different macro, regulatory and financial conditions than those in China or other EMs. Beside that, the share of local investment in the Indian stock market is higher compared to other EMs, although foreign investors have historically favored Indian stocks and don’t seem to be significantly affected by the current global risk aversion. Private investment in India is also much more developed than in many other EMs, reaching about the same level as portfolio investments. These provide strong support to the valuations

The Indian market is down about 7% YTD while most of the other global indices including S&P 500 and MSCI EM are down 15%-25%. India has been a relatively big outperformer this year - but also in the last one, five and 10 years (cumulative performance, Sensex Index).

Invest with confidence following AI recommendations

Global economic slowdown, higher commodity prices, central banks tightening and a strengthening dollar apply strong pressure on EM stock markets. However, many of India’s public companies have very strong fundamentals, with their good financial situation giving them a lot of room to maneuver. Although there can be a period of consolidation and volatility in the near term due to uncertain global macro scenarios, Indian corporates are expected to continue to do well over the next few years. 

Investors are advised to adopt cautious approach before investing and should invest in those companies having strong fundamentals, good business moat and strong industry tailwinds. Rising interest rates are likely to impact capital-intensive industries such as Industrials more than companies in the field of IT and financial services; however, fundamentally strong companies, that can go through the downturn comparably unscathed, can be found in all sectors.

Deshe’s AI constantly skims through millions of data points, checking companies' financials and comparing them to peer groups. Based on this constant research, the AI can find stocks of outstanding companies within any geography or industry, providing investing recommendations vis-a-vis the companies’ competitors, thus filtering for the potential outperformers. 

Here are some of the companies to watch based on our AI fundamental analysis:

Cyient Limited (Ticker: 532175)

Cyient is an Indian multinational technology company that is focused on geospatial, engineering design, information technology (IT) solutions, and data analytic services in North America, Europe, and the Asia Pacific. Established in 1991 as Infotech Enterprises Ltd. it was rebranded as Cyient in 2014 and was featured among the top 30 outsourcing companies in the world in 2018.

Sector Information Technology
Industry Software
Market Cap $1.1B
PE (vs Industry) 16.7 (29.3)
EBITDA Margin 16.3% 
Dividend 3.5%
Rating BUY

Angel One Limited (Ticker: 543235)

Angel One is an Indian stockbroker firm established in 1996. The company is a member of the Bombay Stock Exchange, National Stock Exchange of India, National Commodity & Derivatives Exchange Limited and Multi Commodity Exchange of India Limited. The company has more than 8500 sub-brokers and franchisee outlets in more than 900 cities across India. The company's services include online stock brokerage, depository services, commodity trading and investment advisory services. Personal loans and insurance are also delivered by this company. In 2006, Angel also started its portfolio management services, IPOs business and mutual funds distribution arm.

Sector Financials
Industry Capital Markets
Market Cap $1.5B
PE (vs Industry) 17.1 (17.9)
EBITDA Margin 36.8%
Dividend 2.7%
Rating BUY

Divi’s Laboratories Limited (DIVISLAB)  

Divi's Laboratories Limited is an Indian multinational Pharmaceuticals company. The company manufactures and sells generic active pharmaceutical ingredients (APIs) and intermediates, and nutraceutical ingredients in India, the United States, Asia, Europe, and internationally. Divi's Laboratories is India's second most valuable pharmaceutical company by market capitalization.

Sector Health Care
Industry Life Sciences Tools & Services
Market Cap $12.9B
PE (vs Industry) 29.8 (45.3)
EBITDA Margin 43.3%
Dividend 0.81%

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