India Strategy - Further Dip In Equity Risk Premium Unlikely; Growth Prospects Appear Robust: ICICI Securities

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ICICI Securities Report

Key factors indicating high risk appetite of investors (or low equity risk premium) for Indian equities currently are:

1. low earnings yield of Nifty 50 (trailing at 3.3% and forward at 4.7%) as compared to bond yield of 6.2% and declining earnings yield spread of mid, small and microcaps over large caps;

2. fear index at one-year low (Nifty volatility index at 13);

3. high Nifty 50 index returns in the recent past (up 108% since March 2020 lows) and even higher returns from mid and small caps and

4. relatively low credit default swap spread of India over U.S.

Safe haven assets such as gold and dollar have also trended lower since 2020 but have resisted further downtrend in recent months.

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