India’s valuation premium may remain elevated: CS

K.R.Srivats New Delhi | Updated on September 20, 2021

Stretched valuations and the upcoming US Fed meeting could bring some volatility

The higher price to earnings (P/E) premium for the Indian equities are expected to continue given the market’s improved fundamentals, global wealth management firm Credit Suisse has said in a new report.

In its India Market Outlook report for September 2021, which came days ahead of the crucial US Fed meeting, Credit Suisse has recommended that investors should stay invested in equities but should focus on reducing the beta of their portfolios.

It highlighted that India’s exports are showing a strong recovery, forex reserves are making new highs and more importantly the government’s tax collections so far are much better than expected.

“While stretched valuations and the upcoming Fed meeting could bring some volatility, Indian equities still offer relatively better risk-reward from a medium to long term perspective. India’s macro fundamentals have improved and we continue to expect the P/E premium for Indian equities to sustain”, said Jitendra Gohil, Head of India Equity Research and Premal Kamdar, Equity Research Analyst in their report.

The report also highlighted that the outlook for the banking sector has improved materially

“We suggest investors reduce the beta of their portfolio by cutting exposure to small and mid cap stocks, while adding more large cap companies. We prefer banking and FMCG companies in their near term while the auto sector’s outlook should start to improve in the coming quarters, in our review,” the report added.

It highlighted that in terms of equity flows, India is showing remarkable resilience despite high valuations. After outflows in July, Foreign Portfolio Investors were again net buyers of equities in August ($1 billion) and September ($0.9 billion) so far.

In a portfolio context, equities should still offer attractive returns compared to bonds, according to Credit Suisse’s global investment committee.

Published on September 20, 2021

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