Credit Suisse has upgraded India rating from ‘Underweight’ to ‘Benchmark’ for next year despite concerns over high valuations and a weakening currency.
The outlook on Indian market looks bright especially considering the market’s underlying economic strength and the firm’s preference over the next six months for markets that have lower export exposure.
Though the firm was confident on India’s attractive structural prospects, it held back from going ‘overweight’ on the market due to the high valuation and weakening balance of payments situation for the economy which may necessitate a policy-induced slowing of growth, said Credit Suisse’s Global Equities Strategy.
Stronger GDP growth
Credit Suisse expects GDP growth, going forward, to be stronger than the current consensus forecast of 6 per cent next fiscal. The positive outlook of Credit Suisse is expected to increase foreign fund flow into India.
Neelkanth Mishra, co-Head of Equity Strategy - Asia-Pacific and India Head of Research at Credit Suisse, said revival in government spending, increase in low-income jobs and easing of supply-chain bottlenecks should partly offset the impact of rate hikes, a slowing global economy and the need to reduce the balance-of-payments deficit.
However, he said the risk factors continue to be dependence on imported energy, reliance on foreign capital and a slowing global economy.
Of the major contributors to DII annual flows includes insurance ($12 billion), the Employees’ Provident Fund Organisation ($7-8 billion) and Systematic Investment Plans ($18-20 billion) to sustain. This should keep valuation multiples supported, it said.
Credit Suisse prefers domestic cyclicals over global ones and is ‘overweight’ on sectors such as financials, cement, staples and construction while being ‘underweight’ on Industrials, IT and metals.
In a sweet spot
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company, said among global economic crisis, India is in a sweet spot as both households and corporates have deleveraged but government is leveraged due to Covid crisis.
Last time when Crude touched $100 a barrel, India’s GDP was one-third of Brazil and Russian economy put together and when crude hit $100 again a few months ago, India’s GDP was equal to that of both countries put together. When crude hits $100 next time, India’s GDP will be double the size of both these countries combine, he added.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said there is an increasing realisation that global growth will be slower with Euro zone is on the verge of recession and China struggling from a major property market crisis. In this bleak scenario, he said India is on top of the list among few large economies that have the potential to grow.