The outlook for Indian equities likely remains supportive.  GDP is a key driver of corporate profits in India and, as noted, GDP estimates have started to trend up.  Moreover, given current low capacity utilization rates and margins near historic lows, a modest improvement in profit margins could result in a meaningful boost to earnings. In terms of valuation, the Indian market is currently trading at around 15x one year forward earnings, which is in line with historical averages.  If Mr. Modi delivers even partially on his reforms agenda, that structural improvement coming on top of a cyclical economic recovery could well result in P/E multiple expansion.

Michael Geraghty is the Global Markets Strategist at Cornerstone Capital Inc. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.

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