American investment bank, JP Morgan on Thursday upgraded Indian stock market to “overweight” from “neutral” on account of a massive fall in crude prices as well as weakness in rupee.

Citing a number of factors including historic valuations, expectations for monetary stimulus, lower oil prices, and a weak rupee, the investment bank said it is “overweight on private banks, IT services, and health care, but is underweight on consumer discretionary, energy and materials“.

In the report, its emerging market equity strategist, Mr Adrian Mowat said, “lower oil price helps the current account deficit economies of India and Turkey. Therefore, we are upgrading these countries to overweight.”

Easier monetary policy plus CPI greater than PPI are consistent with an upgrade cycle, the report said, adding the monetary policy has a delayed effect so the cycle may be late 2012 and markets discounting in third quarter of 2012.

Citing reasons for its upgrade, the report said, the (Indian) market appears to have priced in most of the negatives already. MSCI India forward P/E is 12 times the Sensex value now, which is one standard deviation below its 10—year average, it added.

It noted the economic growth was the slowest since 2003 in FY12 at 6.5 per cent and the April factory output was flat after being negative in March. However, it added the falling crude, (which was trading today at $91 a barrel,) will offset a lot of issues facing the country.

The report pegged the current account deficit at 4.6 per cent of GDP for FY12, which was just 2.7 per cent in FY11.

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