Indian equities will deliver positive return in medium term: Credit Suisse

Credit Suisse, a global wealth management firm, sees equities as an asset class that may deliver “positive returns” in India over medium term given the ultra loose monetary policies of the global central banks and fiscal support pre and post US elections.

This is even as its Investment Committee believes the equity market could remain volatile ahead of the US elections.

“In this context, we recommend investors to remain selective and use any major sell off as a buying opportunity in select stocks. We recommend investors should increase exposure to private banks with a 12-18 months horizon”, Credit Suisse Wealth Management, India said in its ‘India Market Outlook’ 2020.

Economy picks up

This research note by Jitendra Gohil, Head of India Equity Research, and Premal Kamdar, Equity Research Analyst, highlighted that economic growth momentum in India has picked up pace and the upcoming results season will provide more colour on the strength of the broad based rally in the market.

“While the valuation is very expensive —12-month forward PE of 21.2 at all time high levels — hopes of further fiscal stimulus in the US (as high as 10 per cent of GDP), development on vaccine and revival in economic activities in India may keep investors interest high,” said the report.

In the past four weeks, the Nifty Index gained 4.6 per cent largely supported by significant appreciation in the IT sector and renewed buying interest in the large private sector banks. The IT sector has seen further valuation expansion given the solid traction in deal wins and renewed growth opportunities, the report noted.

“While the investors are still sceptical about the system wide NPA problems, in our view, the large private banks could surprise positively. Moreover, the macro recovery is picking up slightly faster than anticipated, which bodes well for pro cyclical stance”, the research note said.

Macro Revival

Credit Suisse has highlighted that as the domestic economy continues to re-open, the economic recovery is inching towards the pre-COVID19 level. “With the peak of COVID-19 cases likely behind us and further relaxation of regulatory restrictions ahead of the festive season, the normalisation of economic activities is progressing well ahead of expectations. Due to faster-than-expected economic normalisation, we now expect upward revisions in FY 2020-21 GDP growth forecasts”, the report said.

At the same time, it also underscored the need for support from fiscal and monetary stimulus standpoint without impacting macro stability much. The Finance Minister’s recently announced ₹73,000 crore demand-support measures would have fiscal impact of ₹ 37,000 crore or 0.2 per cent of 2019-20 GDP, it noted.

“While the fiscal spending is not significant and may not move the needle much, it seems clear that the Government is not planning to cut infrastructure and capital spending despite fledgling revenue collection so far. We expect more such announcements from the government to support economic growth”, the report said.

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